Royal Mail puts value at zero to calm share fears

Royal Mail is worth nothing, the organisation has told the Government and politicians, in an effort to take the political heat out of its push to give employees shares in the business.

The state postal service, in arguing that the Government effectively would be giving nothing away if staff were given shares, contends that the shares would also be worthless when they are issued.

Royal Mail has calculated that it is worth nothing because its assets, which are thought to be valued at about GBP5 billion, are cancelled out by its pen-sion deficit, which stands at GBP5.6 billion.

Royal Mail has told the Treasury and the Department of Trade and Industry that the group would be worth GBP4 billion by 2010-11, triggering shares worth GBP5,000 per employee.

It believes that it can build up from a zero balance to a GBP4 billion value through modernisation and increased productivity, which will come from giving staff an incentive through the share-ownership programme.

Royal Mail executives believe that the Government is ready to commit to the scheme, although unions and Labour MPs who oppose the idea believe that it is too politically sensitive amid a Labour leadership battle. A total of 199 MPs have signed a Commons motion opposing any change to the ownership of Royal Mail, which is fully state-owned at present. They fear that the distribution of shares would be the start of privatisation.

When Royal Mail first raised the prospect of employee shares, it was not clear that employees would have to wait to realise any value from them. Now it is expected that they will be worth something after 18 months to two years and be based on twice-yearly valuations of the organisation.

Royal Mail has increased the pressure on the Government to ratify a share-ownership scheme as it continues to wrangle with ministers over the release of GBP3 billion in support for the organisation that was agreed “in principle” in May.

Royal Mail is adamant that the share-ownership scheme should be a crucial part of the rescue package. So far ministers have been reluctant to endorse it.
Billy Hayes, general secretary of the Communication Workers Union, said of Royal Mail’s renewed push on the share-ownership plan: “This is a repackaging of an old idea. It is a phoney attempt to breathe life into a dead issue and the CWU certainly won’t fall for it. Any announcement of a share programme would be a breach of Labour’s election manifesto.”

Royal Mail declined to comment.

Unions will attack Gordon Brown for privatising Royal Mail if he backs the programme, which could damage his chances for wide union support in his bid to lead the Labour Party. Unions comprise a third of Labour’s electoral college.
Alan Johnson, the Education Secretary and a former leader of the CWU, is thought to be considering running for the Labour leadership, having expressed an interest in the deputy’s role. He favours giving employees a role in Royal Mail.

Giving employees shares would require approval by Parliament and primary legislation after a safety clause was built into the Bill that established Royal Mail as a standalone company, with the Government as the sole shareholder.