Privatisation fever grips La Poste and Deutsche Bahn

There's a new whiff of privatisation in the air. Two of mainland Europe's biggest state-owned utilities, La Poste in France and Deutsche Bahn in Germany, have signalled they are planning for an injection of private capital as they gear up for liberalisation of EU markets in the post and on the railways.
The postal market is due to be fully competitive from 2011 while the rail market will pre-date it by two years. But the two behemoths are already planning their transformation, with DB's Hartmut Mehdorn, its chief executive, saying its float of 24.9 pct of its transport, logistics and services arm will take place in late October. This could raise EUR 5bn in one of Europe's biggest most recent IPOs.
The more extraordinary of the two operations is that of La Poste. Throughout the tortuous negotiations among EU institutions over postal liberalisation, originally slated for 2009, the French operator was among the fiercest critics of full-scale competition – unlike the British, Germans and Swedes. But Jean-Paul Bailly, its chairman, has had a Damascene conversion.
He now wants to raise up to EUR 3bn to help finance La Poste's European expansion and to get the legal process in place so that the public enterprise, changed into a SA (PLC), can open up its capital as early as 2011. Rather than attract pension funds, Bailly apparently wants to raise capital via the stockmarket. The state, probably in the form of its investment arm, the CDC, could play a restricted role and the 400,000 current and retired employees would be reserved their share. But the target is institutional and retail investors.
La Poste turns over more than EUR 20bn a year and, in the first half of this year, delivered EUR 481m in net profits. But it lacks the capital to fund its expansion, notably into Spain, or its full modernisation. It also has EUR 5.9bn in debt. Its model is, clearly, Deutsche Post which is now 69 pct in private hands and delivering double-digit earnings growth despite continued losses from its DHL business in the US. The German group, still trying to offload its Postbank, says it is on course to make around EUR 4bn operating profit this year.
It won't be plain sailing for La Poste, however. The unions, which held talks with government ministers on the issue this week, have called a national "day of action" for September 23 in protest. Full privatisation is also banned by the French constitution which stipulates it should remain in public hands. But its current plans certainly reveal it more geared up for pan-European liberalisation than poor Royal Mail.
The British group, in its submission to the independent (Hooper) review of the postal market, complains repeatedly of its limited equity capital as its struggles to deal with losses in its declining universal, six-day letters service and what it claims is a GBP 2.6bn cash gap caused by price controls. Its regulator, Postcomm, openly favours the injection of private capital and private sector partnerships to enable a "more rapid transformation" and make it more efficient and profitable.
But it's far from clear how this would be achieved and experts believe that private capital will only be available if Royal Mail is broken up, with profitable parts of its business like Parcelforce sold off. Meanwhile, the Greeks and Estonians are thinking of privatising their postal operator. The Danes and Swedes are getting together, with the Danish state, postal employees and private equity group CVC owning 40% and the Swedish state and employees of Posten owning the other 60% of the combined operation.
Unless the Hooper report comes up with some radical proposals and this or the next government is ready to bite the bullet, the Brits, the privatisation pioneers, are in danger of being left behind in the EU – again.
One caveat is the very belated stress put by John Hutton, business secretary, on "green technologies" such as nuclear (sic) and renewables – both areas in which the French and Germans, among others, have already secured a lead. If the government is genuinely serious about, say, renewable energy, it should stop blocking progress within the EU on the new directive and promote its growth at home – rather than devising schemes to make backing for overseas projects count towards meeting its share of Europe's ambitious target.