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Royal Mail privatisation subscribed in hours - sources
September 27, 2013 / 6:22 AM / 4 years ago

Royal Mail privatisation subscribed in hours - sources

LONDON (Reuters) - Britain’s Royal Mail privatisation garnered orders for all of the shares on offer in the space of a few hours on Friday, sources said, marking a strong start for a selloff that stands to flush up to 2 billion pounds into government coffers.

The sale would be one of Britain’s most significant since John Major’s Conservative government sold the railways in the 1990s and would give Royal Mail access to the private capital it says it needs to modernise and better compete in a thriving parcels market.

Kicking off the sale of the near 500-year-old company, the government said on Friday it would dispose of a majority stake in Royal Mail, offering shares at between 260 pence and 330p each and valuing the whole company at between 2.6 billion pounds and 3.3 billion ($4.2 billion to $5.3 billion).

Hours later it had already received orders for all of the shares on offer, two sources close to the deal said, without giving an indication of where in the range those orders had come.

If an “over-allotment option”, whereby more stock can be sold if there is strong demand, is exercised, the government’s stake in the company could fall to as little as 30 percent.

Analyst Robin Byde at brokerage Cantor Fitzgerald said that while the medium-term issue remained how fast Royal Mail can grow its parcels business to offset falling letter volumes, the valuation range made it attractive versus European peers such as Austrian Post and Belgium’s bpost.

“The headline really is that it’s priced to go,” Byde said, estimating Royal Mail was valued on a forward price-to-earnings multiple of around 8 times versus an average of about 10 for the European sector. “We would expect it to debut pretty well.”

Royal Mail follows the initial public offering of bpost in June and comes after stronger equity markets have helped revive new listings in Europe this year.

European firms have raised $15.9 billion from flotations in the first nine months, three times the year-ago level, according to Thomson Reuters data.

The sale is the fourth time Britain has tried to privatise Royal Mail, which traces its origins back to 1516 when mail was delivered by horse from King Henry VIII’s court.

Three selloff attempts in 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 latest sale effort has been criticised by the current opposition Labour party and unions, who on Friday sent out ballot papers for strike action.

A Royal Mail post box stands on a street corner in Manchester, northern England September 12, 2013. REUTERS/Phil Noble

The ballot will close on October 16, five days after Royal Mail is scheduled to make its stock market debut, with the earliest possible strike date being October 23.


Labour, which polls show is the frontrunner to win the next election, has come under pressure from its union backers and party activists to pledge to renationalise Royal Mail. While it has not ruled this out, Labour said it would be irresponsible to do so without knowing how much it could cost.

The head of equities at a UK fund manager said Labour leader Ed Milliband’s promise earlier this week to freeze energy prices for 20 months if his party wins power in May 2015 may have made Royal Mail more attractive to some investors.

“The income fund managers are quite intrigued by it (Royal Mail),” said the manager, who declined to be named. “If our friend Ed is going to make things difficult for utilities ... this is potentially quite a nice thing coming through.”

The government said it planned to pay a final 2014 dividend totalling 133 million pounds, equating to a full-year payout of 200 million had the group been listed for the full year.

Based on the offer price range, that full-year payout gives Royal Mail an implied dividend yield of between 6.1 percent and 7.7 percent - making it attractive at a time when a regular UK savings account is yielding less than 3 percent.

Britain has also agreed to hand 10 percent of Royal Mail’s shares to staff in the largest share giveaway of any major UK privatisation. If distributed equally among the eligible 150,000 UK-based workers, each could receive 2,200 pounds worth.

The government said it expected around 30 percent of the shares on offer would go to individual members of the public, who must spend a minimum of 750 pounds to invest in the company.

Royal Mail, which no longer includes the Post Office services and retail business, has annual revenue of more than 9 billion pounds. It more than doubled profit to 403 million pounds in the year to March 31.

Last week Rapid Ratings, an independent U.S.-based ratings agency, gave Royal Mail a cleaner bill of financial health than any of the world’s post or parcel companies, after a “dramatic” change at the firm over the past two years.

Goldman Sachs and UBS are running the sale of Royal Mail, and are also joint-bookrunners along with Barclays and Bank of America Merrill Lynch.

($1 = 0.6249 British pounds)

Additional reporting by Chris Vellacott; Editing by Jane Merriman and David Holmes

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