Vince’s Royal Mail privatisation: independent report concludes “the right decisions were made”

An independent report by Lord Myners published today has concluded Vince Cable and the Government made “the right decisions” during the process of selling off Royal Mail.

royal mail sell off

The BBC explains the background:

The probe was ordered by Mr Cable after a National Audit Office review into the privatisation of Royal Mail said too much emphasis was put on rushing the sale – the initial public offering (IPO) – at the expense of value for money. Shares in 60% of Royal Mail were sold in the flotation. A further 10% of stock was given to the company’s employees, while the government retained a 30% stake.

Royal Mail shares leapt on their first day of trading in October 2013 by 38%, rising later to a peak of 615p. They now stand at 394p. Lord Myners’ report says that a higher price could have been achieved but that “the consensus appears to be that this was the order of 20p-30p per share… equating to proceeds to government at IPO of £120-180m”. …

In his report, Lord Myners said the privatisation, which raised a total of £2bn, was handled “with considerable professionalism” and that the complicated sales process was partly to blame for the sale at a lower than optimum price.

He added: “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. We found no evidence to challenge the general assertion that an IPO price greater than 350-360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made.”

Mr Cable said he was “grateful” for the report.

The 94-page report is available to read in full here. In his introduction to his report, Lord Myners states:

… I regard the privatisation to have been a complex exercise executed with considerable professionalism. The standard bookbuilding process does have inherent limitations. Some of these were evident in this transaction. It is possible that the Royal Mail issue might have priced a little higher had the bookbuilding process formally tested interest at levels above 330p per share, but I do not believe that this would have led to an IPO priced anywhere close to the level of initial trading

Vince Cable, the privatisation’s architect, may well have something to say abut the report today — but here’s a reminder of what he said a few months ago when he eviscerated Labour’s Chuka Umunna’s attempts to make political hay: Vince Cable in his own words on the sale of Royal Mail:

It was right that we took a cautious and measured approach to the sale. That approach was taken in the light of our primary objective, and reflects the considerable risks we faced due to industrial relations and challenging market conditions.

The price range for the shares was set following a comprehensive programme of engagement with over 500 potential investors and was benchmarked against valuations of comparable postal companies. I am clear that this was the correct approach to secure a successful transaction.

A more aggressive approach to pricing would have introduced significantly greater risk. The advice that we received in this respect was unambiguous. There was no confidence that a sufficient number of buyers would offer a significantly higher price. A failed transaction and the retention of Royal Mail in public ownership would have been a very poor outcome for the taxpayer, as the NAO report confirms.

Achieving taxpayer value is about securing both short-term and long-term benefits. In the short term, we have delivered a successful transaction, which raised £2 billion for the Exchequer, enabled over 690,000 members of the public to buy Royal Mail shares and put in place the largest employee share scheme of any privatisation in nearly 30 years. In the long term, we have reduced the ongoing risks to the taxpayer by putting Royal Mail in a position where it can operate commercially and finance its own funds if needed. In doing so, as the NAO confirms, we have achieved our key objectives.

The sale of shares in Royal Mail has delivered on our commitment to protect the universal postal service and safeguard vital services for the taxpayer.

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11 Comments

  • Apart from flogging the Royal Mail in the first place, right?

  • Who wanted to sell the Royal Mail? Those who would be lining their own and others pockets certainly not the people of the UK. It should never have been sold. The NHS is next and despite protestations TTIP will destroy it as American companies take hold.

  • >In the short term, we have delivered a successful transaction, which raised £2 billion for the Exchequer

    In a normal IPO the majority of these monies would of been remitted to the business, who would of decided the extent to which it’s investors benefited.

  • The Royal Mail had to be sold because of the creation of European Single Postal Market which allowed competition from 27 other countries and limited RM to the declining postage stamp business and delivering B2B post for its competitors after they do the collection and sorting.

    The consequence will be the decline of postal services that are not economic and the cherry picking of the lucrative parts by the competition. This process has started.

    The probe ordered by Mr Cable produced the answer he wanted. I doubt if the millions who flocked to buy the shares are convinced by the judgement.

  • Peter – You are right the review was gave the answer Vince wanted, it only looked at the way the government owned shares were sold through the IPO; the reasons for sale were out of scope!

  • I wanted it sold. I have dealt with RM on a professional basis for years and it has always been a nightmare. They didn’t know the meaning of customer service, had no flexibility for smaller operators and their antiquated procedures were bureaucratic in the extreme. Ordinary people who just buy a stamp occasionally won’t know how useless they are and are obviously going to be against privatisation because they have this romantic Postman Pat image of the whole thing, while those of us who actually have to work with them (or more accurately around them) are left to suffer.

  • This demonstrates ALLthat UKIP says about the failed political elite, in one neat stroke..

    An incompetent minister, accepting terrible advice, under sells a precious national asset by more than a billion pounds.

    Think how many nurses could be employed by that amount of money! It was an act of criminal negligence.

    Rather than acting with decency, and resigning on the spot, he dismisses the stock market appreciation of the true value of the asset as “froth”, (not froth sunshine, but a BILLION pounds you left on the table), and launches a white wash report as a CYA. It duly delivers.

    In memory of Mandy Rice D (RIP) “they would say that wouldn’t they?”

    You couldn’t make it up…

  • Chris Manners 21st Dec '14 - 3:06pm

    Going to put this on your election material? Another promise kept, and all that?

    Losing £180m isn’t exactly something to be proud of. Nor was the fiasco of the “gentleman’s agreement” with the “priority investors”. Nor is Cable’s refusal to publish who they were, despite being done over big time by them.

    Recall that Cable had sneered at Gordon Brown as “Mr Bean”, posed as a scourge of the City and all that.

  • Chris Manners 21st Dec '14 - 3:07pm

    ” In the short term, we have delivered a successful transaction, which raised £2 billion for the Exchequer”

    While reducing the assets held by them by more.

    Brilliant.

  • simon,

    Have you actually read even the summary of the report?

  • nvelope2003 21st Dec '14 - 7:06pm

    In a normal sale of shares the money would have been remitted to the seller, in this case the Government, which is what happened. The shareholders will benefit or not according to whether the business thrives or not. The idea that this is some precious national asset sold off for a pittance is incorrect. We are in 2014 not 1914 and communications are not dependent on mail, even in 1914 telephones were being used for urgent matters and now virtually everyone has one and hardly any letters except advertising mail are sent. The idea that the state should be responsible for shifting tons of junk mail around the country is rather sinister. Parcels have been distributed by private operators for centuries. Royal Mail only entered this business in the 1880s to bolster up its finances because of the losses caused by the penny post.

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