Royal Mail ‘underpriced’ – but not by much
The government could have raised another £180 million from the privatisation of the Royal Mail, according to a report out today, but ministers may be comforted that Lord Myners’ (pictured) verdict was reasonably supportive of the issue.
Critics have claimed the taxpayer was sold by short when the government ended three decades of trying to deliver the service into private hands. It foiled Labour as well as Conservative administrations, so selling it at all was seen by some as a victory of sorts.
But when the shares rocketed in the first few weeks the government was accused of offering it cheaply to please big City institutions rather than the taxpayer.
The fiercest critics did not want a sale at all. Others felt the Treasury could have made as much as £1 billion more from the process. An initial 60% stake was offered for sale and demand was strong, raising £2bn.
Shares were issued at 330p in October last year and soared to 455p on their first day and 618p by January. They have since fallen back and now trade at 400p.
In light of the outcry, Lord Myners, a former Labour minister, was commissioned to look at ways the government sells public assets and today he says the book building, which assesses demand for shares, needs to be improved.
But the report is not as damning as government ministers may have expected or critics may have hoped he would produce.
Myners that his panel believed the offer could have been increased by 20p to 30p per share, equivalent to an additional £120m to £180m for the government, far lower than a previous report that said it could have raised as much as £750m.
“For the avoidance of doubt, we do not believe that a price anywhere near the levels seen in the aftermarket could have been achieved at listing,” the report said.
Myners has accepted that the markets were turbulent and that there were other factors that could have depressed the price, including continuing industrial relations issues.
While critics say a higher price could have been achieved, the government had to consider the backlash there may have been if it had over-priced the issue, resulting in a price fall and a loss to the taxpayer.
The fact that the shares have fallen back endorses the view of those, including Business Secretary Vince Cable, who felt there was too much froth in the shares in the first few weeks following the flotation.
Furthermore, the private investor now truly has a stake in the Royal Mail and a chance to benefit from capital and income gains as it prospers.
A line now needs to be drawn under this debate. Royal Mail has other issues to resolve including its ability to continue with the universal service in the face of competition from rivals who it accuses of cherry-picking the postal business and leaving it at a disadvantage.