Investors rush for Deutsche Post

Mail delivery used to be the main profit centre of Deutsche Post

The markets failed to reward the stock market flotation of Germany's mail monopoly, Deutsche Post, with a rise in the share price on Monday morning.

But the flotation was still a success: the offer for a 25% stake in Deutsche Post was eight times oversubscribed, following a late surge in demand.

Some 28.5 million shares changed hands in the first half hour of trading, with the issue initially rising 2% to a high of 21.40 euros, before dipping briefly below the 21 euros issue price to 20.93 euros

The shares later stabilised around the 21.25 euros mark.

"In these times that is very good," Deutsche Post chief executive Klaus Zumwinkel said, referring to what he described as difficult stock market conditions.

Too little logistics

Analysts disagreed. They described the price rise as modest and feared the share could soon fall well below 20 euros.

"This confirms my assessment. Electronic commerce and logistics still make up too little of the business," said Pia-Christina Schulze, an analyst at Merck Finck.

About half the shares went to private investors, in what is Europe's largest stock market flotation this year.

The flotation repeated the success of the privatisation of former telecoms monopoly Deutsche Telekom four years ago.

In a break with tradition, the Deutsche Post flotation was advertised not only in Germany, but in seven other European countries as well.

In the UK, about 30,000 investors are reported to have qualified for "yellow shares" - the corporate colour of Deutsche Post.

Deutsche Post has turned itself into Europe's biggest logistics company

However, most of the foreign demand came from institutional investors, such as banks and pension funds, while Germans - and Post employees - made up the majority of private investors.

The company raised 6.6bn euros (£4bn, $5.6bn) in the flotation, giving it a stock market value of 23.4bn euros.

The firm priced its shares at 21 euros apiece, slightly higher than expected, but early subscribers to the offer will get a 50 cent discount. Analysts had expected a lower issue price of 20 euros.

Re-inventing a mail carrier

The yellow shares should get an extra boost through the sheer size of the company. Experts believe it could qualify for inclusion in the blue-chip Dax index straight away.

This would force tracker funds to buy the stock and drive up the share price.

But Deutsche Post also hopes that the stock market will not value it as a stodgy former monopoly trying to cash in on its market domination.

The company has tried to transform itself into a pan-European logistics giant, trading as Deutsche Post World Net.

In a 7bn euros spending spree, Deutsche Post has improved its international reach by snapping up 37 smaller firms in recent years.

Its biggest deal was taking a majority stake in logistics firm DHL International, which handles all activities of the DHL Worldwide Express network outside the United States.

Mail delivery, once the main profit generator for Deutsche Post, now accounts for just a third of business.

Alleged illegal trading

The group's aggressive expansion has been controversial. Competitors, including Royal Mail in the UK and the US parcel service UPS have accused it of abusing its market dominance.

The European Commission is currently investigating three complaints of alleged illegal trading practices.

But the risk of hefty fines has not deterred investors.

Analyst predictions that the share would fail to rack up quick gains were confirmed when trading started.

But traders said that despite the heavy selling by retail investors, demand from institutional investors remained strong.

Other traders said the share price is likely to be supported by Deutsche Bank and UBS Warburg, the underwriters of the offering.

"The banks...will buy at 21 euros, they don't want the price to go under 21 euros," said Stefan Chmielewski, trader at German brokerage Schnigge in Düsseldorf.