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Case 2 - Date November 7th 2010 From Natalie Bello RD3-1108...

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Date: November 7 th , 2010 From: Natalie Bello, RD3-1108 To: Professor Chen Re: United Parcel Service s IPO In July of 1999, the United Parcel Service (UPS) announced that it was planning an initial public offering that would transform it into a publicly traded company. UPS was a very established business with significant revenues and industry market share before deciding to become a publicly traded company. The main dilemma that was a joint concern of both Morgan Stanley Dean Witter & Co. and UPS was the price for the new shares for the launch of the initial offering. There are a variety of factors that UPS and its partners must consider before deciding on a price for the offering; these factors consist of current and future trends in the package delivery industry, UPS s strength and weaknesses relative to other competitors, UPS s recent financial performance, and the valuation of comparable companies. One of the many issues when deciding on an initial price offering for UPS s IPO is the industry comparisons that they would be basing this decision on. The fact is that UPS had a significant share of their industry market and were too large in their industry for the comparisons to be fair. A better comparison would be with the companies that would be considered the best-of-breed in their particular industry. UPS ’s largest competitor in the ground and express delivery industry was a company named Federal Express (FedEx). Over the years from 1997 to 1999, UPS reported average net profit margins of 6.5% and Return on Equity (ROE) of 25.2% versus 2.8% and 10.6%, respectively for FedEx. The fact that UPS has a higher net profit margin means that they are better at effectively and efficiently controlling their costs, creating a higher percentage of profit when compared to the company ’s sales revenues. UPS is able to control their costs
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