UPS set to borrow $10bn to help fund expansion
By Justin Baer

United Parcel Service plans to borrow about $10bn to buy back stock and expand through acquisitions in its latest bid to boost a flagging share price and shake its image as a conservative company that valued a sterling credit rating above growth.

UPS first sold stock to the public in 1999 after almost 100 years under private ownership.

Yet, for years, the world's largest package-delivery company maintained the highest corporate investment grade, a strategy investors argued no longer made sense, given its financial strength and potential for higher growth.

UPS shares have trailed those of arch-rival FedEx in six of the past eight full years since the IPO.

UPS said yesterday that its board moved to boost its stock repurchase program to $10bn, up from $2bn annually, and plans to deplete the new budget in the next two years.

"We are putting that balance sheet strength to work to more efficiently deploy capital for the benefit of our shareholders," Scott Davis, UPS' chief executive, said in a statement. "UPS' stable cash flow means we can accept a higher degree of debt while continuing to strategically grow our business."

The Atlanta-based company, which today has about $3bn in debt on its balance sheet, also said it plans to keep a ratio of funds from operations to total debt at 50 percent to 60 percent going forward.

It is a new measure for UPS, which lost its triple-A rating from Moody's Investors Service last month after the company paid more than $6bn to exit an employee pension plan.

That payment, along with a new contract with the International Brotherhood of Teamsters, gave UPS the clarity it needed on future cash needs to take on additional debt, the company said.

The company has said it wants to expand its small-package delivery network internationally and recently struck deals in the UK, China and Poland.

S&P cut UPS' rating three notches, from Triple-A to AA yesterday, following the company's announcement.

The new policy also marks the first large initiative unveiled during the nine-day-old Scott Davis era.

Mr. Davis, formerly UPS' chief financial officer, succeeded Mike Eskew as chief executive at the start of the month.

---Source: FT.com 1/10/08