Private-equity group lobbies the government for Royal Mail stake

The private-equity firm CVC Capital Partners is pressing the Government to be allowed to buy a stake in Royal Mail should it decide to part- privatise the state-owned postal operator.

CVC, which owns a number of household names in the UK including the AA and the Debenhams department store, is understood to have approached ministers and the Royal Mail chairman Allan Leighton to set out its ideas.

CVC recently completed a EUR6bn (pounds 4bn) fund-raising in Europe to finance acquisitions. Any auction of Royal Mail would be certain to attract interest from rival private-equity firms and other trade bidders.

The Secretary of State for Trade and Industry, Alan Johnson, is due to receive a report from Sir George Bain on the future of Royal Mail before the end of the year, which could pave the way for a partial privatisation of the organisation.

Royal Mail made a record pounds 537m profit last year on income of pounds 9bn, and could be worth up to pounds 5bn according to some estimates. The bumper profits triggered pounds 218m ‘share in success’ payments to the workforce, worth pounds 1,074 for each employee. Mr Leighton wants the Government to agree a John Lewis-style arrangement under which shares in Royal Mail would pass to its 160,000 strong workforce. Initially, he was pressing for a majority of the company to be owned by its employees, although Royal Mail could now settle for a minority sell-off.

However, more than 100 Labour backbenchers have signed an early-day motion demanding that the Government retains 100 per cent ownership of Royal Mail. They fear that an employee share buyout would eventually lead to the organisation being owned by outside investors, and CVC’s interest is bound to heighten these concerns.

CVC owns 20 per cent of Denmark’s postal operator Post Danmark and yesterday a consortium led by CVC and Post Danmark was chosen to buy a stake of 50 per cent less one share in Belgian Post.

The private-equity firm believes its track record on the Continent should allay fears about it owning a stake in Royal Mail. It is thought that CVC would be happy to own shares in Royal Mail alongside employees and be restricted to holding a minority stake.

In the case of the Danish and Dutch post offices, the decision to allow CVC to become an investor was preceded by discussions with the government of the two countries and unions.

Royal Mail would like a decision on its future ownership before the UK postal market is fully liberalised from the start of next year, allowing rival operators to deliver all types of mail. Mr Leighton is also pressing the Government to relief the organisation of half of its pounds 2.5bn pension deficit and permit a pounds 2bn capital injection so it can invest in the modernisation of its network.

Mr Leighton believes an employee share buyout would help transform the culture of Royal Mail as it prepares to face increased competition from rivals such as Deutsche Post and the Dutch national postal service, TPG.