Hooper to help shape Royal Mail’s future

Vince Cable, business secretary, will announce on Thursday that he has commissioned Richard Hooper to update his findings and help shape the coalition’s ambitious privatisation plan for Royal Mail, reports the Financial Times. Mr Hooper, whose report in December 2008 led to Lord Mandelson’s failed part-privatisation effort, will give ministers his initial views in the summer and publish a fuller update by early autumn. The coalition is considering options ranging from a full stock market flotation to the sale of a stake to an industry buyer or private equity group.

The article continues:

It has yet to decide how much to sell, though a significant stake is likely to be set aside for employees.

“Unless we take the right steps Royal Mail risks being laid low by falling mail volumes, low investment and a huge pensions time bomb. We want to deal with these challenges and will be coming forward with new legislation to do just that,” Mr Cable will say. Mr Hooper, in reviewing the future of the universal postal service, made three main recommendations: government action to eliminate the pension deficit, a new regulatory regime and introduction of an experienced strategic minority shareholder.

He argued then for a partnership with “one or more private sector companies with demonstrable experience in transforming a major business, ideally a network business, in circumstances comparable to those now faced by Royal Mail”.

This time, a potential shortage of industry bidders is forcing ministers to consider an initial public offering as an alternative.

The postal operator may be worth only about £ 4bn in today’s fragile markets, but could be worth more if conditions improve in two to three years.

Among those interested last time, TNT, the Dutch postal operator, is restructuring itself and there is no sign of Germany’s Deutsche Post DHL coming back in. CVC Capital Partners, the private equity group, still appears to be keen.

Royal Mail’s pension fund deficit is due to revalued from £3.4 bn to about £10 bn this month, but the government could take over or fund the deficit as part of a privatisation plan.

In his report, Mr Hooper recommended postal regulation be switched from Postcomm, a dedicated regulator, to Ofcom, the media regulator where he used to be deputy chairman, partly because competition was coming from e-mail and mobile telephony.

Mr Hooper said: “When I published my report 18 months ago, I concluded that the universal service was under threat and there was a consensus that the status quo was untenable.

“Developments since then have seen letter volumes continuing to decline and Royal Mail continuing to modernise its operations, helped by the recent agreement between the management and the Communication Workers’ Union.

“I welcome the opportunity to update my report and look forward to hearing from all those whom we consulted last time and from others who have an interest.”