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Government could have made £180m more from Royal Mail

by LLB Reporter
18th Dec 14 9:01 am

But should we be bothered about £180m?

Lord Myners thinks not.

He’s just published a report, commissioned by Business Secretary Vince Cable, into the controversial sale of Royal Mail in October 2013.

As a quick recap… the government’s IPO (initial public offering) of Royal Mail generated £2bn.

After the sale occurred, critics argued that it could have made as much as £1bn more than that, saying that Royal Mail shares were significantly under-priced.

There was high demand from institutional and retail investors for the shares, which leapt up 38% in value on their first day.

Shares were priced at 330p, but Lord Myners’ report suggests it would have been risky to price them any higher than 350-360p.

The report therefore found that the government could have only made £120-£180m more than it actually did, without taking on “substantial” risk.

“Significant value”

Royal Mail postbox

The report states: “For the avoidance of doubt, we do not believe that a price anywhere near the levels seen in the aftermarket could have been achieved at listing.”

Royal Mail shares now stand at 394p, though they peaked after the IPO at 615p.

The report generally supports the way the government priced shares, saying it achieved “significant value”. It also praises the “professionalism” of the sale.

Lord Myners said: “I regard the Royal Mail privatisation to have been a complex exercise executed with considerable professionalism.

“Many previous governments attempted to sell but failed.

“The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process.”

Cable said: “I would encourage financial regulators and those bringing companies to market to engage in this debate.

“In particular they should explore how digital auctions could, in certain circumstances, make the sale process much more flexible.

“I also welcome his comment that the sale was executed with considerable professionalism and that any decision to try to have priced the shares higher would have been risky. We were right not to take that risk.”


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