UK Government tells Parliament it achieved “value” in Royal Mail sell-off

UK Government tells Parliament it achieved “value” in Royal Mail sell-off

The UK Government has insisted that it achieved value for money for the taxpayer in selling off Royal Mail, despite the huge increase in the share price immediate after the company was floated on the London Stock Exchange. In its response to the inquiry from Parliament’s Business, Innovation and Skills Committee, the Government claimed there was “no evidence” to suggest it could have achieved a higher initial price for shares than 330p ahead of the IPO last October.

As soon as trading opened on Royal Mail shares, the price rocketed to 450p, and subsequently the share price rose to 618p before falling back to 388p in the last eight months.

The Government said the 450p share price related to only a small proportion of Royal Mail shares changing hands at the time, suggesting that had it attempted to sell 600m shares at such a price, the IPO would have failed.

Stating that it raised nearly £2bn in selling off 70% of the company to investors and the employee share scheme, the Government claimed that a failed IPO would have left Royal Mail in public ownership valued at “less than £1bn”.

“A more aggressive approach could have resulted in a failed transaction, leaving the taxpayer at risk of supporting the universal service and leaving the company unable to access the private capital it needs to invest and grow,” stated the Government in response to the Parliamentary Committee.

The Committee had concluded from its inquiry that it was “not clear” whether value for money was achieved in the sale of Royal Mail or whether ministers had obtained the “appropriate” return to the taxpayer.

The Government in its response indicated that it now intends to hang on to its remaining 30% stake in Royal Mail to benefit from future dividends, such as the £39.9m it would receive from fiscal year 2013/14. It said now Royal Mail was in the private sector it had been able to raise £1.8bn from capital markets to support its growth plans, something ministers claimed it could not have done under public ownership.

“Delusional”

Commenting on the Government’s response, the Communication Workers Union said yesterday that the Government was “delusional” to claim that setting the price of Royal Mail shares higher than 330p would have seen the privatisation process collapse.

The union, which represents more than 115,000 Royal Mail workers and opposed privatisation ahead of the IPO, said the Government was wrong to claim selling the company achieved value for money, and avoided the need for the taxpayer to fund the universal service.

It said Royal Mail was profitable before privatisation, and that now the company is in the private sector, it is warning that the universal service is under threat anyway, at risk from “cherry-picking” competitors.

Billy Hayes, the general secretary of the CWU, said: “This response from the Government today is delusional – to say that selling off shares at a higher price would have made the sell-off of Royal Mail collapse is just wrong. What about the fact that shares were 23 times oversubscribed? The Government has skipped over this inconvenient detail.”

Hayes added: “It was a deeply unpopular move and it might of been palatable to the public had billions of pounds not been wasted by selling off the company to short-lived city investors on the cheap.”

Elsewhere in its response to the Committee, the Government denied claims that it over-emphasized the risk of strike action prior to the IPO when valuing the initial Royal Mail share price.

Commenting on the investors given preferred status in the hope that they would be long-term investors in Royal Mail, who subsequently sold off their shares within weeks of the IPO when the price soared, the government said if it had actually required a commitment from the investors concerning the length of time they should hold onto their shares, the achievable price would have been reduced.

And, the Government claimed that the position of the firm Lazard as both a financial advisor to the IPO and as an investor in Royal Mail shares was not against the rules, since the advisory division and the asset management division of the company were separate.

It pointed to Lazard’s view that the company itself had not benefited significantly from the profits of 13m shares that suddenly rose in value, it was Lazard’s clients that benefited.

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