UPDATE 2-UK plans Royal Mail stake sale, TNT interested

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UPDATE 2-UK plans Royal Mail stake sale, TNT interested
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By David Milliken

LONDON, Dec 16 (Reuters) - British business minister Peter Mandelson said state-owned postal operator Royal Mail should be part-privatised, and he welcomed an approach by Dutch logistics company TNT (TNT.AS: Quote, Profile, Research) to take a minority stake in the company.

Mandelson, presenting the results of an independent review, said the operations arm of the Royal Mail -- though not its Post Office retail outlets -- needed to be partly privatised in order to remain commercially viable.

"We and the Royal Mail have already received one expression of interest from the Dutch company TNT to build such a partnership," Mandelson told parliament.

"I very much welcome this approach, just as I will welcome other expressions of interest from other partners should they come forward. My department will pursue this in the coming weeks," he added.

TNT said in a statement that its interest in a stake in Royal Mail hinged on the full implementation of Mandelson's reform proposals, including changes to regulation and the government paying off much of Royal Mail's company pension liabilities.

"Assuming the UK government implements these recommendations, I think that exploring a strategic partnership with Royal Mail makes a lot of sense for both our companies," TNT Chief Executive Peter Bakker said.

Analysts said a deal would only make sense if TNT, Europe's second-largest mail and express delivery company, was able to revamp its British competitor.

"Whether or not a deal is good for TNT depends on the freedom that they will have with respect to restructuring. Royal Mail is generally a more old-fashioned company but there are plenty of restructuring opportunities," said ING analyst Axel Funhoff.

"It depends really on the freedom that the regulator lets them (have)," he said.

He said there was a possibility that TNT may not need to fork out any money for a stake due to Royal Mail's pension deficit.

"If the value of Royal Mail is negative, then basically TNT would have to be paid to take it over," said Funhoff.

The main author of the Royal Mail review, Richard Hooper, told Sky News that Britain's postal service was much less efficient than its Dutch and German counterparts, with far more letters sorted by hand rather than machine.

Industry analysts have cited German postal operator Deutsche Post (DPWGn.DE: Quote, Profile, Research) as another potential partner for Royal Mail. Deutsche Post declined to comment though in the past the board has said it had no interest in a stake in Royal Mail.

Royal Mail said it welcomed Hooper's report and the approach from TNT.

The Communication Workers Union, which represents most of Royal Mail's workers, said that private capital was not the solution to Royal Mail's problems, though it welcomed proposals for the taxpayer to reduce Royal Mail's pension fund deficit.

TNT shares closed at 13.56 euros and Deutsche Post at 10.95 euros. Rothschilds are advising Royal Mail. (Additional reporting by Foo Yun Chee in Amsterdam and Matthias Inverardi In Dusseldorf; Editing by David Cowell and Simon Jessop)