British government to sell majority stake in Royal Mail

The UK government said it will sell a majority stake in 360-year-old Royal Mail via an initial public offering by the end of March.

Staff will get 10% of the shares for free, on condition they hold them for three years, and retail investors will be offered stock on the same terms as institutional buyers, business secretary Vince Cable told the House of Commons yesterday.

“We will retain flexibility around the size of the stake to be sold,” Cable said. “This will be influenced by market conditions, investor demand and our objective to ensure overall value for money for the taxpayer.”

It will be the largest UK privatisation since the break up of British Rail in the 1990s.

One of the country’s biggest employers with 159,000 workers, Royal Mail has sought to adapt its letter-focused network to more lucrative package shipping in the face of competition from TNT of the Netherlands and Deutsche Post’s DHL Express.

Royal Mail chief executive Moya Greene said she welcomed a move that will make it easier to tap capital needed to operate as efficiently as European counterparts such as Deutsche Post and Austria Post, which deliver over 95% of letters the following day.

“Our employees will have a meaningful stake in the company and its future success,” she said. “The public will have the opportunity to invest in a great British institution.”

Labour MP Chuka Umunna said that Royal Mail, likely to fetch at least £2bn (€2.3bn) was being “sold off on the cheap” to raise cash following the failure of government economic strategy.

The Communication Workers Union condemned the IPO plan as “illogical and impractical,” saying cash for investment could be raised just as easily under public ownership.

The union added that it will fight the sell-off and that strike action is inevitable without legally binding assurances on terms and conditions that will apply following the flotation.

Royal Mail said it is open to creating a binding contract that would safeguard “pay and protections” for a set period.

The UK postal service’s operating profit more than doubled to £403m in the year to March 31 as growth in internet sales spurred deliveries. Parcel revenue rose 9% as overall sales advanced 5% to £9.28bn.

The decision to make shares available to retail buyers and institutions on the same basis contrasts with the privatisations of the 1980s, such as British Gas and British Telecom, when stock sales were aimed primarily at the public in a concerted effort to broaden share ownership. An advertising campaign accompanying the sale will also be muted.

The business department appointed UBS and Goldman Sachs as joint global coordinators and joint bookrunners on May 29, Barclays Plc as joint bookrunner and sponsor, and Bank of America Merrill Lynch as joint bookrunner for the deal.

Investec, Nomura Holdings and Royal Bank of Canada will take junior roles. Total fees if the deal goes ahead will reportedly be in the region of £10-15m.

A formal intention to float will be issued in due course, the government said yesterday.

- Bloomberg