MPs slam UK government’s handling of Royal Mail IPO

MPs slam UK government’s handling of Royal Mail IPO

Members of the British Parliament have criticised the UK government and its advisors for failing to secure an “adequate and appropriate return” from the sale of Royal Mail. In a report pre-empted by yesterday’s announcement by the government that it will review last October’s IPO, Parliament’s Business, Innovation and Skills Committee said the UK taxpayer missed out on “significant” value when Royal Mail was floated on the London Stock Exchange.

The Committee, which repeatedly grilled business secretary Vince Cable during its inquiry, said setting the initial share price too low ahead of the IPO meant the nation losing out on as much as £1bn.

The nation also lost out in the £1.98bn share sale because Royal Mail sites being put up for sale were included in the company being privatised.

Property including three prime sites in London, which could be worth as much as £830m, should have been removed from the privatisation process, the Committee said.

In its report, the Committee also took the government to task for the quality of its advisors, stating the belief that Lazard, UBS and Goldman Sachs failed to judge how much the nation could get for Royal Mail shares.

There wasn’t evidence of “inappropriate” behaviour from these advisors, the MPs said, despite this year’s revelations that advisor Lazard was also involved, via its investment arm, as a priority investor in the Royal Mail sale.

However, the Committee said the Government “was not well-served” by its advisors, and called for stricter rules excluding IPO advisors from also being preferred investors in this kind of privatisation.

“Losing out”

Adrian Bailey, the committee’s chair, said: “This was the most significant privatisation in years. We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares. The Government’s inclusion of Royal Mail’s ‘surplus’ assets in the sell-off, without the prospect of clawing back future proceeds, may also mean the taxpayer losing out once again.”

The government received further censure from the Committee for how it fared on attracting long-term investors to hold significant stakes in Royal Mail Group.

It said many of the priority investors had simply bought their shares cheaply before selling them off quickly for a profit.

“It’s not at all clear that the Government’s sale of Royal Mail has brought an adequate and appropriate return for taxpayers,” said Bailey. “The Government cannot blithely dismiss as ‘froth’, our Committee’s concern that the low issue price of this prime public asset has cost the taxpayer around a billion pounds.”

“Incompetence”

Commenting on the MPs’ report, the Communication Workers Union highlighted the Committee report’s finding that the government had over-estimated the risks that the union’s strike threat posed to the IPO.

The CWU, which represents more than 115,000 Royal Mail employees and campaigned last year against postal privatisation, said the Committee had exposed the “incompetence” in the privatisation process.

Billy Hayes, the union’s general secretary, said: “This is the second report which has exposed the government’s bungling of the privatisation of Royal Mail as a political opportunity. Both the National Audit Office’s report earlier this year and today’s BIS select committee report stated that shares were grossly undersold, losing taxpayers hundreds of millions of pounds.”

Hayes added that yesterday’s announcement by Cable that he would review the Royal Mail IPO was a “cynical attempt at damage limitation”.

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