Mail Boxes Etc. has signed a letter of intent to sell a 9% stake in the company to United Parcel Service for $11.3 million, the first step in what the San Diego-based franchiser hopes will become a strategic relationship with the package delivery service.
Terms of the deal call for UPS to buy 400,000 newly issued Mail Boxes Etc. shares at a price of $25.25 each, or $10.1 million. In addition, Greenwich, Conn.-based UPS would pay $1.2 million for warrants to buy an additional 400,000 shares at prices ranging from $27 to $38.875 over a three-year period. If the warrants are fully exercised, UPS would own a 17.4% stake in Mail Boxes Etc.
News of the deal sent Mail Boxes Etc. shares up $3 to close Monday at $25 a share in over-the-counter trading. The 10-year-old company has franchised more than 1,200 stores that provide postal and business communications services. The deal is slated to close within three months pending due diligence by UPS.
Under terms of the deal, UPS may acquire more Mail Boxes Etc. shares on the open market, but limits those additional stock buys to a 35% maximum stake in the company for a period of five years.
UPS spokesman Ken Sternad declined to comment on the deal, other than to say that the $11.3 million is "a good business investment on its own, and that's what it really is at this point." Sternad stressed that UPS, a $12-billion corporation, has made many investments in related businesses such as courier services.
Mail Boxes Etc. officials said the investment shows increased UPS interest in storefront postal service and mail receiving agencies, said Blaine Roberts, a member of Mail Boxes Etc.'s board of directors.
One analyst, who asked not to be named, said Monday that UPS, which now delivers packages only during business hours Monday through Fridays, may eventually use Mail Boxes Etc. to perform the "retail function" of making packages available to customers for pickup after hours or on Saturdays. The investment is also a recognition by UPS that the rapidly proliferating postal service centers play an increasing role as an alternative to door delivery of parcel, urgent mail and communications services.