The British government has defended its pricing for this month’s historic privatisation of RoyalMail, claiming that the threat of strike action forced down the offer price and rejecting
accusations that taxpayers were ‘short-changed’.A 62% stake in Royal Mail was sold at 330 pence per share, valuing the postal group at £3.3billion and raising £2 billion for the government. But the IPO was massively over-subscribed andthe share price surged more than 50% on the London Stock Exchange in the first week of trading,closing at £5.02 on Friday.
The share price continued to rise today, trading at 510.50 pence by mid-afternoon. This valuesRoyal Mail at about £5.1 billion.
Business Secretary Vince Cable said on Friday, however, that the risk of industrial action dueto the ongoing pay dispute had influenced the price-setting process after potential long-terminstitutional investors threatened to pull out of the IPO.
“This change to the industrial relations position meant that there were some potential investorswho stated that they were not willing to invest at all and many others who focused on the businessand financial implications of strike action,” Cable wrote in a letter to a parliamentary committeelooking into the privatisation. The government thus decided to maintain the offer price rangedespite the apparent heavy demand for shares.
Cable also confirmed that the UK government had reviewed comparable listed postal companies,including Austrian Post, bpost, Deutsche Post and PostNL, as part of the Royal Mail valuationassessment.
Based on their current share prices, Austrian Post has a market capitalisation of €2.34 billion,bpost is valued at €2.9 billion and PostNL at €1.48 billion. Deutsche Post, a much larger and morediversified company, currently has a market capitalisation of €29 billion while peers UPS ($87bn)and FedEx ($40bn) are valued much more highly and TNT Express has a current capitalisation of €3.6billion.
As expected, CWU members have voted heavily in favour of strike action, with a one-day stoppageset for November 4 if no deal is reached by then. Further industrial action could follow inNovember and December, heavily hitting Royal Mail volumes and revenues in the pre-Christmas peakseason.
Competitors have said that they might be able to cope with some additional volumes resultingfrom limited strike action but there is no “Plan B” under which the industry as a whole couldhandle large-scale additional volumes switched by customers from a strike-hit postal operator toalternative delivery providers.
