Government may address Royal Mail float post haste

[fishtank]

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When Michael Heseltine was a government minister back in the Thatcher era he wanted to privatise the Royal Mail, but was stopped allegedly because the Queen did not approve. Nor for that matter did the Treasury which much preferred to have the business within the state sector where it could be milked of dividends.

Now, more than 30 years on, the present Government looks likely to go where Heseltine ultimately feared to tread and, possibly as soon as this autumn, the Royal Mail could be going for a stock-exchange flotation. Indeed, one of the more politically intriguing issues is whether Chancellor George Osborne will be tempted to take account of the likely proceeds in next week’s Budget.

The closeness of the IPO will surprise a lot of observers because many still think the Royal Mail is a basket case. It was, but not any more. Under the chairmanship of Donald Brydon and, more particularly, for the past three years under the day-to-day management of Canadian Moya Greene, the business has been transformed.

The major roadblocks standing in the way of the business’s sale to the public have been removed. The regulatory yoke has been lifted so that now only 15% of its business rather than the previous 85% is subject to price control. The unions, so long seen as an implacable obstacle to change, have been largely won over by Greene’s co-operative rather than confrontational approach. The post office estate has been separated and could be subject in time to a discrete, co-op style of sale to the public. The pension deficit — one of the largest in the UK — has been passed to the taxpayer.

But the company still needs a growth story to catch investors’ attention and this is where things really have changed. Though it will be positioned as an income stock, it is in fact a business with good growth prospects — or rather with growth already achieved.

In an age of email, it is no surprise letters are in decline. What may be a surprise is that letters are no longer the major part of Royal Mail’s business.

The future in fact is with parcels which are now thought to account for more than half the revenue of the business and are expected soon to account for even more. What is driving this is the switch to internet shopping and the fact that customers still believe the Royal Mail is more likely than its competitors to deliver their parcels on time and in their original shape. The big customers are coming to believe it too. The Christmas before last, Amazon got macho with the Royal Mail and switched to a different supplier. The results were not what it had hoped for. So last year it switched back.

But if that is half the story, the other half is Greene’s determination to make sure they pay a fair price for the service, so Amazon found itself paying more second time round, which plays to the point about a looser regulatory regime. Today, if private-sector companies want Royal Mail levels of service, they have to pay for it; previously the regulator — worried about monopoly — made sure that they didn’t.

Now all this might not yet be enough to persuade the public to buy the shares — and it might have been better to wait — but the problem is that the political clock is ticking and they want to get the sale out of the way well before the next election. That means no later than 2014, hence the push for this autumn. If the timetable proves too tight, they still have next year.

Not that Labour is expected to oppose a flotation — this was its objective after all when it was in government. As a first step, Peter Mandelson flirted with the idea of selling a slice to CVC, the private-equity house, though he failed ultimately to get the support of Gordon Brown. But elections do strange things to politicians and who knows what Ed Miliband or Ed Balls might stick in a manifesto to demonstrate their Left-wing credentials in a (to them) painless way. If, however, they are presented with the fait accompli of a completed sale well before the election, they are unlikely to seek to renationalise.

All of which brings us to the question of how much the business might be worth — a pertinent question given that 20% of the float may be allocated to retail investors and a further 10% to the staff. Much depends of course on the capital structure and the proportion of equity to debt in the business at the time of the float. That said, and provided the company can persuade investors that it is master of its own destiny and no longer subject to the capricious control of a regulator, a value of £3 billion does not seen out of reach — making this one of the most significant share flotations for years.

[motch]

£2000 to royal mail employees? at a rough guestimate? if 10% share to posties

[hubbahubba]

Two grand and how long before you pay that back,and more,in the form of unpaid breaks,minimal or no sickpay,reduced holiday entitlement and a lower minium wage?....