Belgium knows best
"IT will be as exciting as taking a stake in the Belgian Post Office.'' Which, in the manner of a pickled stockbroker of yore, is as if to say "dull, dull, dull''.
How then to explain that CVC, one of the UK's leading private equity houses whose annual investment returns are habitually well over 20 per cent, is taking a substantial holding in De Post/La Poste, Belgium's state-owned postal service?
Now you could see its behaviour as evidence of the two mutually reinforcing economic forces holding sway over our markets: private equity with too much money and too little sense. But it's wiser to give CVC – with its famous killer instinct – the benefit of the doubt. There must be gold in them there creaking former monopolies.
In fact, CVC has gone conspicuously long of posties, having bought a 22 per cent stake in the Danish Post Office for DKr1.27bn ( pounds 116m) in the summer (and it is acquiring 49 per cent of De Post in partnership with Post Danmark).
Now note well – those of you who hold the allegedly sclerotic European Union in contempt – that these public services are being privatised by two adherents of that very same European social model that is supposed to be the antithesis of entrepreneurialism and efficiency.
Meanwhile, here in flexible Albion, with our love of liberal markets, it's challenging to find even one of our elected representatives prepared to argue that Royal Mail should be freed from the shackles of the state.
The Government's reluctance to countenance privatisation of Royal Mail during the lifetime of this parliament is profoundly unimpressive. It puts an ignorant nil-value on the palpable benefits of bringing in outside shareholders.
And it's not just the access to new sources of capital that would be valuable. What focuses the mind of management on where to best invest and where to eliminate costs is the discipline of seeing the business through the eyes of non-partisan shareholders (whether private-equity ones or traditional fund managers).
Anyway, ministers may instead opt for a modest amount of employee ownership. Or at least that's the implication of what Alan Johnson, the trade and industry secretary, has told the Commons.
To put it another way, the Government may transfer 20 per cent of Royal Mail's shares to a trust for the benefit of Royal Mail's employees. As I understand it, the current plan is that an investment bank would be invited to value Royal Mail. And then the company itself would raise the funds to buy the shares for staff at a 60 per cent discount (this is, in fact, what is happening in Denmark).
On the assumption that Royal Mail is worth between pounds 3.5bn and pounds 5bn, this would cost the business up to pounds 400m and would give every postie and sorter a stake with an initial value of about pounds 6,000. Which, in itself, is attractive in that staff would have a more direct financial interest in seeing Royal Mail succeed as a commercial venture.
But, with the public sector retaining 80 per cent, Royal Mail would still be run according to what is politically possible as opposed to what would mash up competitors. And with Royal Mail facing the abolition of most of its market privileges in January, such shackles would be the guarantee of a decrepit future.
It is not even obvious that jobs would be protected if it remains in the public sector. According to plans that Royal Mail has submitted to Postcomm, the mail regulator, management is planning to reduce the workforce by a further 30,000 in the coming few years, having already cut headcount from 218,000 to 165,000 since 2000/01.
This is not to argue that Royal Mail's people are lousy. Quite the reverse, in fact. Which will be proved over the coming days, if past experience is any guide, when I receive searing, elegant demolitions of this column from the postmen with whom I correspond.
And there is evidence that Royal Mail's execs know what to do in a proper marketplace, in that they have created a profitable business-to-business parcels service on the continent, called GLS. With turnover of more than pounds 900m and profits last year of pounds 61m, GLS is something of a hidden jewel.
Meanwhile, the elephantine statistic about Royal Mail is that it has a deficit in its pension fund of about pounds 4bn – a financial deadweight that could sink the biggest, strongest company. Inevitably, therefore, Royal Mail wants responsibility for the scheme to be transferred to the public sector in general.
But if the Government and the Treasury agree to take on this liability, they would be betraying taxpayers if they demanded nothing in return. It's more than a neat symmetry that the market value of Royal Mail is equivalent to the black hole in the fund.
Here's the painful question. If Belgium and Denmark can opt for privatisation (while the floated Deutsche Post can buy a substantial listed logistics business, Exel), is the sale of Royal Mail really too brave and scary for Tony Blair and Gordon Brown? I have a residual and naïve hope that to ask the question isn't fatuous.
