Royal Mail – did the share price deliver value for money for the UK public?

Did the Sale of Royal Mail achieve value for money?

In News by olga0 Comments

Following the sale of Royal Mail, the UK Government insists that fair value was realised for UK taxpayers. This was irrespective of the massive share price rise immediately after the public flotation via the London Stock Exchange.

Royal Mail sell-off unpopular
The unpopular decision to sell off Royal Mail caused much controversy after it was suggested by many that the Government could have achieved a higher price for shares in the company.

In official response to the inquiry conducted by BISC (the Business, Innovation and Skills Committee) the UK Government stated that there is simply a lack of evidence to state that a higher price than 330p per share could have been realised following last October’s IPO.

Royal Mail Share Price Fluctuation
Immediately Royal Mail was floated on the London Stock Exchange, the share price soared to over 450p and even rose at one point as high as 618p before falling to 388p over the following eight months. Check the current price here.

A Government spokesman commented that the 450p price was only applicable to a relatively small number of share trades whereas the sale had to sell 600 million shares, which simply wouldn’t have happened if the share price had been set so high.

Royal Mail Sell-off worth £2Billion
The Government has also stated that they raised almost two billions pounds by selling off seventy per cent of Royal Mail to the share scheme for employees and a group of investors and that if the IPO had failed, it could have caused Royal Mail to be still in public ownership with the valuation of less than £1 billion pounds.

The Government believes that setting a more aggressive price could have resulted in a total failure to sell the shares (i.e. undersubscription). This would have caused the UK taxpayer to have been at risk of funding Royal Mail’s universal service obligation. They also said that if Royal Mail had not been sold off, they would not have had access the private capital investment required to achieve growth.

Concerns over the Royal Mail Privatisation Share Price Set

However, not everyone is happy with the Government’s actions. The Communication Workers Union (CWU) stated that it was delusional to suggest that a higher price would have resulted in a failed privatisation process.

The Communication Workers Union, which represents over 115,000 Royal Mail workers, strongly opposed privatisation ahead of the sale. They have recently said that Royal Mail was in profit prior to privatisation, that the sale was to obtain funds for government and that the universal mail obligation would be under increasing risk due to competitors adopting a ‘cherry picking’ approach.

The Committee investigating the sale has concluded from its inquiry that it was ‘not clear’ whether the Government achieved value for money by selling Royal Mail or whether ministers had achieved the ‘appropriate’ return for the taxpayer.

If you are interested in talking about the direct mail industry and benefits to your business, contact a member of the Baker Goodchild team on 0800 612 1972.

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