LDVideo: Vince Cable praises Royal Mail’s “very good launch” onto the stock market

Royal Mail shares soared on their first day’s floatation yesterday, prompting inevitable accusations that the company had been priced too low. Here’s Lib Dem business secretary Vince Cable explaining his aim to assure long-term investment irrespective of the froth of the “spivs and speculators”:

The Independent has a fair-minded editorial today, pointing out the hypocrisy of Labour’s shadow business secretary Chuka Umunna warning of undervalued shares and a “massive bonanza” in advance of the floatation then holding up his hands in horror that such talk helped hype demand for the massively over-subscribed sale:

The most crucial thing in any flotation – particularly in the privatisation of a state asset – is to ensure the sale is successful. Had the Government priced Royal Mail shares higher (and Mr Umunna not put his shoulder so assiduously to the marketing wheel), the risk is that the deal might have flopped – which would be not only a political catastrophe, but not good news for the public purse either. And with another 30 per cent of Royal Mail set for sale next year, it is better to err on the side of caution and whet retail investors’ appetite for more. …

Furthermore, behind the “froth” – to borrow Vince Cable’s description – there is still reason to consider the price a fair one. After all, even as some investment analysts have spent the last week pointing out Royal Mail’s lucrative property portfolio and robust parcel-delivery operation, more sober heads note that the company is still barely a year out of serial loss-making decline, has industrial relations disputes looming and was valued broadly on a par with its industry peers. More than anything, it is simply too soon for the certainty that many are so swift to evince. … Once the price has settled down, if it is still far above 330p, there will be questions for Mr Cable to answer – most likely posed by the National Audit Office. Until then, however, wild talk of giving away the family silver is hardly less speculative than the stock market itself.

The Financial Times’ business and employment editor Brian Groom offers his praise to Vince Cable today:

Vince Cable, Liberal Democrat business secretary, ought to be able to congratulate himself on privatising the 500-year-old company where predecessors such as the Tories’ Michael Heseltine and Labour’s Peter Mandelson failed. … Vince Cable defended the pricing on Friday, saying the “froth and speculation” would die down in the coming months. But it emerged that the government did ask Lazard, its adviser, to review the price range in the past couple of weeks when demand looked high. It was decided that the price was pitched correctly, after a number of big institutions signalled they would drop out if the price went above 330p. Ministers also did not want the share price to crash after the flotation and leave small investors sitting on losses.

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4 Comments

  • Eddie Sammon 12th Oct '13 - 5:30pm

    I am very disappointed in the government shortchanging the public on this. First of all they gave 10% to workers for free, which should never have been done and was simply a bribe, and secondly the market opened 36% higher than the privatisation price. It wasn’t simply a mistake because if it was the government would have got angry with Lazards, the financial adviser, but they haven’t, which suggests that they knew it was undervalued. Questions need to be answered.

  • Paul In Twickenham 12th Oct '13 - 6:41pm

    Sounds like Dr. Cable is advising small shareholders to crystallize their profits immediately.

  • Once the Royal Mail is sold, it is no longer the government’s responsibility. Why on earth didn’t he take advantage of people prepared to pay a premium and charge a premium. That’s how supply & demand works. It’s basic economics.

    It would have made perfect sense, from the tax payers point of view, to talk up the share price, sell it at the highest possible rate, then let shareholders deal with the consequences.

  • Sorry but why couldn’t this wait until next term, the Royal mail staff and the public didn’t want this to happen so why did it?

    The coalition was about stabalising the economy, this should have been part of the 2015 manifesto for both the tories and LDP but instead it gone totally against what I believe to be democratic principles.

    As for the price it appears that Labour have a valid point but hey, as long as those who could afford to purchase shares have made a quick buck then who gives a flying one.

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