To: Jim B (12903 )
From: Gerald Walls
Wednesday, Nov 10 1999 1:30AM ET
Reply # of 12910
TheStreet.com sez:
Brokerages/Wall Street
Brown Sugar: The Free-for-All for a Piece of UPS
By Gregg Wirth
Staff Reporter
11/9/99 6:00 PM ET
URL: thestreet.com
There's a thin line between an expression of interest and one of slavish devotion.
And Morgan Stanley Dean Witter, which priced United Parcel Service's
groundbreaking IPO Tuesday night, is definitely feeling the love from institutional clients
desperate to get into the $5.6 billion deal.
One smitten institution asked for an allocation of 42 million shares. The request, called
an expression of institutional interest, was equal to more than one-third of the shares
being offered and would have carried a price tag of about $2 billion.
But with demand far outstripping supply -- investors are said to have requested almost
$60 billion worth of shares, making the offering oversubscribed by some 10 times -- no
customer is likely to receive a full allocation, no matter what size the request. "This
customer was definitely trying to signal that they care about this deal," says one banker
close to the IPO, requesting anonymity.
With an overhang of that size and retail demand expected to be brisk, shares of UPS on
Wednesday could see a significant jump once they start trading.
Brownout
Meanwhile, members of the six-bank underwriting team and the deal's syndicate banks
are working furiously just to keep the biggest-ever IPO for a U.S. company from
turning into a debacle.
The UPS deal may result in "Morgan Stanley's most crazy day ever," according to one
pro on its syndicate desk. Morgan Tuesday priced 109.4 million shares, 80% of them in
the U.S. and the rest overseas, at 50 apiece, above the once-increased price range of
47 to 49.
Despite the deal's massiveness, Morgan Stanley is sticking to the normal game plan for
any large deal -- a strategy that will have the firm tiptoeing through a minefield of retail
exuberance, institutional demands and ever-present flippers.
Morgan, leading a fleet of Wall Street banks that includes rivals Goldman Sachs and
Merrill Lynch, has approached the two sides of its buying base in different ways.
"With your retail clients, you want to spread out the shares as widely as possible, you
want to get that very broad," says the banker close to the deal. "But with institutional
clients, you want to concentrate the shares among the top 50 to 100 best funds." That
would mean, given that about 70% of the deal -- roughly 77 million shares -- is likely to
end up in institutional hands, each of the top funds could each see allocations of between
1 million and 2 million shares.
Meeting and Greeting
To that end, Morgan bankers and UPS executives were scheduled to spend the hours
up until the deal was priced sifting through requests for institutional orders, meeting with
anxious fund managers and, finally, choosing which funds will get the market's hottest
deal.
This process becomes especially important because, given the deal's size, it may be
difficult for an investment bank to support in the aftermarket, says Scott Sipprelle, head
of Midtown Research Group, an independent IPO research firm. "On smaller IPOs, an
underwriter can get in there and support the price," he says. "But on something this
large, it is going to trade on its own." He adds that his firm is trying to get a "meager"
allocation in the UPS IPO. Morgan declined to comment on its strategy for the offering.
Of course, the IPO syndicate is working for more than the shiny-brown toy UPS trucks
Morgan is giving away as IPO mementos. Using a conservative estimate of underwriting
fees, the banks could see as much as $250 million in total fees, with between $100 and
$120 million going to Morgan Stanley alone. The co-managers would split a large part
of the remainder, with some crumbs going down to the line to the syndicate banks.
Mail Chauvinism?
And all this demand has its downside, as well -- at least to some eyes. Even before
Tuesday's pricing, Morgan pumped up the deal's price talk to between 47 and 49 per
share, from the original chatter of between 36 and 42.
The almost-25% hike didn't sit well with some prospective investors, creating perhaps
the only real chink in the deal so far. "One of my portfolio managers says he is scaling
back his order, another says he may cancel it," says David Briggs, head of equity trading
for Federated Investors (FII:NYSE).
Of course, those funds would still seek to get as many shares as they can, Briggs says.
"But if retail investors get this thing moving, you could see institutions selling at the outset
and buying back cheaper later in the day," he explains.
Chasing Your Retail
On the retail end, this deal may be even more fiercely competitive. The IPO is expected
to disperse the most shares ever put into retail hands in a single offering. If Morgan
sticks to the expected 30% cut for retail clients, that means almost 33 million shares will
be placed with retail investors. Indeed, the investment banks involved in the deal that are
viewed as having the strongest retail franchises -- Morgan, Merrill and Salomon Smith
Barney -- were given their retail allotments three days ago.
As an added precaution, Morgan placed a 500-share limit on retail orders. At the
average expected retail order of 130 shares, it would require more than a quarter of a
million retail investors to lap up all those shares.
Now that's love. |
