Mail set for sell-off in 'two to three years'

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Mail set for sell-off in ‘two to three years’
By Brian Groom, Business and Employment EditorPublished: July 22 2010 23:09 | Last updated: July 22 2010 23:09
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Royal Mail is likely to be partly or wholly in private hands within two to three years, giving it freedom to escape the Treasury’s control and raise money to invest, according to the minister in charge of privatising the service.

Ed Davey said in an interview with the Financial Times that the Con-Lib coalition would pass “flexible” legislation by June before embarking on the most ambitious privatisation for 20 years.

“We will do this. Where Lord Heseltine and [Lord] Mandelson failed, Vince Cable [the business secretary] will succeed,” he said, referring to a failed Tory plan in the 1990s and Labour’s abortive part-privatisation last year.

Mr Davey – who, like the business secretary, is a Liberal Democrat – said the government wanted to resolve all the main issues, including the regulatory framework and Royal Mail’s £10bn pension deficit, “so any purchaser of any type has certainty”.

The government is considering options including a 100 per cent flotation, a staged approach or sale of a stake to an industry or private equity buyer. Employees will be offered a stake, probably through a John Lewis-style trust.

“The objectives are to secure the universal service, drive the organisation so Royal Mail is best in class and get private capital and private disciplines in,” Mr Davey said. “We will do that when we think that can best be delivered. I would hope and expect it to be within the next two to three years.”

Industry and City observers believe a sale of Royal Mail, which might be worth about £4bn, would be difficult in today’s markets but could become easier by then.

Mr Davey said Royal Mail had “not a prayer” of getting more Treasury funds for investment in the current spending climate, so the freedom to borrow commercially that privatisation would bring was vital.

A £900m government debt facility is due to expire in 2014, when the Treasury must decide whether to insist on being repaid or negotiate another facility.

“You have seen what private capital has done in electricity, water, transport and so on. Billions have been spent on the infrastructure that would never have been spent in the state sector,” said Mr Davey, a former postal consultant. He recently visited Belgium’s La Poste and plans to see Germany’s Deutsche Post to learn from their privatisations.

A big test will be whether privatisation can be pushed through in the face of opposition from the Communication Workers’ Union without provoking strikes after last year’s dispute over working practices.

“I don’t expect the CWU to change their fundamental position on the injection of private capital but I have found them very constructive when talking about issues like their members’ pensions,” Mr Davey said. The government could take over Royal Mail’s pension deficit, due to be revalued to about £10bn, as part of a privatisation deal.

Mr Davey said Royal Mail would face a bleak future without privatisation, given its pension deficit and the loss of postal volumes to e-mail.

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