LONDON Britain sold a majority stake in Royal Mail at 330 pence a share on Thursday following massive investor interest that values the postal service company, known worldwide for its iconic red postboxes, at 3.3 billion pounds.
In one of Britain's biggest privatisations for decades, Royal Mail priced its London listing at the top of a 260 pence to 330 pence range in a sell-off which could flush around 2 billion pounds into government coffers.
But the sale has been criticised by the opposition Labour party as under-pricing the firm and short-changing taxpayers.
Royal Mail's public offering leaves the government with a 38 percent stake, it said on Thursday, but this could fall to 30 percent should it choose to exercise an over-allotment option.
The government made 33 percent of shares available to the public, more than the 30 percent allocation that had been had expected, after the sale was oversubscribed seven times. That left institutional investors, whose offer tranche was over 20 times oversubscribed, with 67 percent of the offering.
Business Secretary Vince Cable on Thursday denied claims that the firm had been sold off on the cheap.
"There's no question of it being undervalued, we worked for a very long period of time to establish the true value for serious long-term investors," he said, adding that he thought the government had struck the right balance by favouring small investors.
Royal Mail's flotation, which has gone ahead despite the threat of strike action and criticism from Labour, follows three earlier attempts by different governments to privatise the business that has been in state hands for almost 500 years.
Those attempts over the last 19 years have failed due to opposition from within the governing majority, which feared an electoral backlash from tampering with a revered institution whose red post-boxes are known around the world.
The government's allocation strategy for individual investors, who each had to spend a minimum of 750 pounds, favoured those who applied for less than 10,000 pounds worth of shares. Those applying above that level did not receive any shares.
The government will also hand 10 percent of Royal Mail's shares to staff in the largest share giveaway of any major British privatisation.
Shares in Royal Mail begin trading at 0700 GMT on Friday. Financial spread betting firm IG predicted the shares will start trading at around 406 pence based on its client activity in recent weeks.
Labour, which polls show is the frontrunner to win the next election, has resisted pressure from its union backers and party activists to pledge to renationalise Royal Mail, but has been highly critical of the government's handling of the sale.
"The government have got very, very serious questions to answer. It's quite obvious that they've priced Royal Mail shares in a particular way, and reduced all the asset values to enable it to sell quickly," Labour's postal spokesman Ian Murray told Reuters.
"A valuation somewhere between 4.5 and 6 billion (pounds) seems to be the valuation that should come in, we'll see that tomorrow when the price spikes at the opening bell."
The government said over 690,000 people had applied for shares in Royal Mail. That compared with the 4.5 million people who applied for shares in British Gas, which was privatised in 1986, raising 5.4 billion pounds.
The Communication Workers Union, which represents postal workers and is holding a strike ballot over pay and job security, slammed the flotation and said it was organising a protest outside the London Stock Exchange on Friday.
"This successful British company has been flogged on the cheap for no good reason," CWU general secretary Billy Hayes said in a statement.
Royal Mail's flotation follows that of its Belgian peer bpost in June and comes as strong equity markets have helped revive new listings in Europe this year. European flotations raised $15.9 billion in the first nine months - three times the year-ago level, according to Thomson Reuters data.
(Editing by Belinda Goldsmith and Ron Askew)