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Royal Mail sell off could have achieved better value-report

By BHawes  |  Posted: April 01, 2014

Royal Mail
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The Government could have achieved better value for the taxpayer through its controversial privatisation of Royal Mail, according to a new report which revealed that most investors given priority to buy shares, sold them shortly after making a profit.

The National Audit Office (NAO) disclosed that 12 priority investors sold all or some of their holdings within the first few weeks of trading.

Critics of the privatisation said the spending watchdog offered "startling proof" that the Government sold off the country's family silver "on the cheap".

But Business Secretary Vince Cable said the report showed that the Government achieved what it set out to do - securing the future of the universal delivery service through a successful sale.

The NAO said Mr Cable's department took a "cautious" approach to a number of issues which led to shares being priced at a level "substantially below" the initial trading price.

On the first day of trading last year, Royal Mail's shares closed at 455p, 38% higher than their price sale, representing a first day increase in value of £750 million for the new shareholders.

Amyas Morse, head of the NAO said: "The Department was very keen to achieve its objective of selling Royal Mail, and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer.

"The Government retained 30% of the company. It could have retained even more and allowed the taxpayer to participate further in the rapidly increasing share price and thus limit the cost to the taxpayer."

The Government could have retained 110 million more shares, worth £363 million, at the offer price, while still privatising the business, said the report.

The NAO revealed that six priority investors sold all their shares within weeks of trading, while a further six sold part of their holdings, and four others increased their holdings.

The 16 priority investors were allocated £728 million worth of shares, while another 94 institutions were given £570 million worth.

The Government of Singapore and the Children's Investment Fund Management each have over 3% of total shares, but other priority investors have not been named.

Those which sold their shares made a "substantial" profit, said the report.

Three surplus properties with a market value of more than £200 million were disclosed in the privatisation prospectus, but the NAO said it did not believe the basis on which the company was sold recovered this value.

The NAO pointed to "shortcomings" in the sale process, which said made it difficult for the Business Department (BiS) to change the share price above 330p - the top of the range set by the Government.

Recommendations by the NAO included looking at alternative methods of accessing equity markets and reducing reliance on professional advisers, which the report said cost £12.7 million in the Royal Mail sale.

Mr Cable said: "We secured the future of the universal postal service through a successful sale of a majority stake in Royal Mail, predominantly to responsible long term investors.

"Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale. The report concludes there was a real risk of a failed sale attached to pushing the price too high, and a failed sale would have been the worst outcome for tax payers and jeopardised the operation of Royal Mail going forward.

"The report also comprehensively demolishes the argument that the government should have relied on the price valuations of some banks who were pitching for the contract to sell Royal Mail.

"The NAO confirms we have protected taxpayers from the risk of needing to offer ongoing support to the company as well as safeguarding the vital six day a week service that customers and businesses around the country rely on."

BiS permanent secretary and accounting officer Martin Donnelly said: "We remain strongly of the view that our course of action was appropriate given the significant risks at the time and the fact that the alternative of a failed sale would have been the worst outcome for the taxpayer.

"The sale price secured by the Government was based on a comprehensive process of preparation, in which we took extensive professional advice and consulted with more than 500 investors. We have raised almost £2bn for the taxpayers in the process.

"By retaining a 30% stake in the business we have made sure taxpayers have benefited from dividend payments and will continue to benefit from share price rises after the sale."

Shadow business secretary Chuka Umunna said: "This report delivers a damning verdict on the Tory-led Government's botched Royal Mail fire sale, leaving the taxpayer disgracefully short changed by hundreds of millions of pounds. At the same time, stamp prices have shot up by 30% and vital services have been put at risk at a time when families are already being hit by a cost-of-living crisis.

"We now know definitively that far better value for taxpayers could have been possible had ministers adopted a different timetable for the sale. The NAO could not be clearer: the inflexible timetable set by ministers for Royal Mail's privatisation resulted in the public losing out.

"When Royal Mail was privatised, Vince Cable described the huge rise in its share price as 'froth', but since then it has continued to rise. He and David Cameron have serious questions to answer on the hundreds of millions of pounds they have lost British taxpayers and cannot duck responsibility for what has happened."

Unite national officer Brian Scott said: "This report is startling proof that the Government sold off the country's family silver on the cheap.

"The privatisation of Royal Mail was wrong in every way. The loser is the UK taxpayer and the tragedy is that money that should be flowing into the Treasury for schools and hospitals is going into the pockets of private investors."

Communication Workers Union general secretary Billy Hayes said: "Vince Cable can no longer hide behind his claims of 'froth'. The froth has gone cold as report after report condemns the sale for what it was.

"This report finds the Government guilty by an independent body that shows it failed on a number of counts - it's clear the Government should have listened to us when we called for alternatives to selling off Royal Mail. It was never about establishing a long-term shareholder base and all about making a quick buck for City investors.

"There are so many aspects to Royal Mail privatisation highlighted in this report that had appalling results. This further supports the view that the Government was desperate to get rid of Royal Mail because it fitted with their agenda. The sell-off was never about getting the best deal for taxpayers.

"The report reinforces that this was a fire-sale package created for political purposes which is simply not good enough and continues to put the future of Royal Mail at risk."

Labour MP Adrian Bailey, who chairs the business select committee, said the report underlined allegations that the Government sold Royal Mail "at any cost".

He said: "The main priority was to get it off their hands rather than get value for money for the taxpayer.

"The Government said it entered into intensive research and negotiations to ensure the shares went to long term investors, yet 50% of them sold very quickly and made a very good profit."

Mr Bailey said the whole sell off process was "questionable", leading to the loss to the taxpayer of hundreds of millions of pounds.

"If that amount of money had been squandered in any other way there would have been a huge outcry."

The select committee will soon be publishing its own report on the Royal Mail's privatisation.

Conservative Business Minister Michael Fallon said a loss-making public corporation had been transformed into one of the top 100 British companies, 10% of shares were in the hands of staff and 750,000 people invested in it.

He told the BBC Radio 4 Today programme: "So, this was a success and the Audit Office report actually recognises that we achieved our objectives."

Mr Fallon said there had been difficult market conditions and "challenging" industrial relations at the time which meant that some priority investors would not have paid more than 310p.

He added: "Hypothetically, we could have got a higher price but we would have taken a bigger risk of the public not subscribing for shares, of the whole transaction falling apart and Royal Mail's value - and the NAO recognises that in their report - collapsing. It would have been worth far less if we'd had a damaging transaction that didn't receive public support."

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  • Lecorche  |  April 01 2014, 11:16AM

    Just another stitch-up that benefitted our rapaciouc bankers.

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