Today in History: 2 Landmark IPOs and the Bill that Built the Middle Class

On this day in economic and business history ...

Pfizer has one of the oldest histories of any American pharmaceutical company, but it's a relatively recent entrant to public markets compared with some of its early peers. Pfizer finally became a publicly traded company on June 22, 1942, nearly a century after its founding. The $5.9 million IPO, one of the largest of that year, saw roughly half of Pfizer's shares reach public hands at a price of $24.75 apiece as the transitioning chemical enterprise wound up with a first-day market cap of $12.4 million. The company's 1941 earnings translated to a P/E ratio of about 10.9. Even before going public, Pfizer had strong dividends -- private shareholders had received a yield of about 5.2% in 1941, based on the share price on its IPO day.

A New York Times description of the company that day shows just how far Pfizer has come from 1942: "Charles Pfizer & Co. is a leading producer of fine organic chemicals and is believed to be the world's largest manufacturer of citric acid." Two years after its IPO, Pfizer applied the techniques mastered for citric acid mass production to become one of the earliest pharmaceutical manufacturers, as it churned out doses of penicillin for Allied soldiers fighting on the beaches of Normandy.

Pfizer's growth into one of the world's largest pharmaceutical companies has taken investors on an incredible ride. By the time Pfizer launched Viagra in 1998, its market cap had already grown by more than a million percent from its IPO valuation. By the time Pfizer became the second pharmaceutical component of the Dow Jones Industrial Average in 2004, it was already indisputably the largest company among its peers worldwide, with more than $15 billion more in annual sales than the next-largest competitor. Pfizer was worth roughly $170 billion seven decades after its IPO, equaling an annual market cap growth rate of 14.6%.

From the battlefield to the suburbs
President Franklin D. Roosevelt signed the Servicemen's Readjustment Act -- popularly known as the GI Bill -- into law on June 22, 1944. It proved to be one of the most consequential pieces of legislation in Roosevelt's extraordinarily consequential presidency, but it very nearly failed to pass.

Most in Congress agreed that it was important to avoid the mistakes made in caring for World War I veterans, who were given fairly little and wound up in such dire financial straits during the Great Depression that many marched on Washington, D.C., to demand the early payment of rather modest service bonuses. Despite this historical precedent, many in the House and Senate disagreed with a proposal to provide unemployment benefits for out-of-work veterans. The bill narrowly passed, with a provision for $20 in weekly benefits (equal to $260 a week in 1945, once the war ended), valid for up to one full year. In the end, less than a fifth of the money earmarked for this part of the GI Bill was ever disbursed, because the rest of the bill proved so effective. Andrew Glass of Politico recounts the GI Bill's success:

When the original legislation expired in 1956, federal payouts for college expenses, training programs, and monthly stipends had benefited 7.8 million veterans of World War II.

By funneling money to veterans for tuition, living expenses, books, supplies and equipment, the GI Bill transformed U.S. higher education. Before World War II, fewer than 15% of high school graduates, mainly from affluent families, earned college degrees. By 1947, veterans made up half the college enrollments. By 1950, nearly 500,000 Americans had graduated from college, compared with 160,000 in 1939.

Another facet of the GI Bill provided low-interest, zero-down-payment home loans. Under this program, some 2.4 million ex-service personnel took out home loans backed by the Veterans Administration (now the Department of Veterans Affairs).

The GI Bill and its legislative descendants have helped veterans get degrees and homes for more than 50 years. An estimated 20 veterans and their dependents have gone to college on the GI Bill, and more than 14 million home loans were guaranteed for veteran buyers -- all for a rather modest cost of $67 billion, or less than $1.4 billion per year. It should be no surprise that the GI Bill is often called "The Bill That Built the Middle Class."

Ice cream in the heartland
The first Dairy Queen opened in Joliet, Ill., on June 22, 1940. Advertised as "the new frozen dairy product," Dairy Queen's soft serve was a big hit from its earliest days, which inspired a franchising business model to develop shortly after the Joliet location opened. This first location closed by 1954, a year after the first Canadian Dairy Queen opened. A year later, the company had exploded to more than 2,600 locations, a growth rate that puts nearly every other fast-food franchise to shame. Berkshire Hathaway acquired the Dairy Queen parent company for $585 million in 1998. Today, it operates more than 6,000 locations in 20 different countries.

No more nice bright colors
Kodak ended the production of its iconic Kodachrome color film on June 22, 2009, symbolically closing the door on the era of film photography. By this point, Kodak was primarily a digital-photography business, with less than 1% of its revenue derived from Kodachrome. The company tried to sound an optimistic note that day, promising to stay in film photography "as far into the future as possible." Three years later, Kodak was bankrupt. There could be no more doubt that film-based photography had become a thing of the past.

Private equity goes public
Blackstone Group went public on June 22, 2007, with a $4.1 billion IPO, one of the largest IPOs in American history. The private-equity firm wound up with a first-day market cap of more than $33 billion and announced that it would sell a further $3 billion of its shares to a Chinese government investment vehicle, bringing the total cashout to $7.1 billion for Blackstone's founders and executives. This marked the first time in the relatively short history of private-equity firms that the business itself was offered to the public, rather than one of its investment funds. It was a massive windfall for Blackstone founder and Chairman Stephen Schwarzmann, who walked away from the IPO nearly $700 million richer -- not including the estimated $7 billion worth of Blackstone he still held as shares.

Blackstone's IPO, however, proved to be a major red flag for the sputtering American economy, which was in the midst of a frothy buyout frenzy and about to drive over a cliff of defaulting subprime mortgages and the exotic financial instruments attached to them. Shares immediately began to crater, and they didn't stop collapsing until the rest of the market bottomed out in 2009, more than 80% lower than where they began in 2007. Five years later, a tepid recovery had only restored Blackstone to half of its IPO-day valuation, highlighting one simple fact of Wall Street: When the professionals want to sell out, you should probably pay attention.

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