RM: early takeover could mean bigger gains for investors

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Royal Mail: early takeover could mean bigger gains for investors

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Bid for newly floated company more likely because shares could end up with "quick-buck merchants" rather than long-term investors.

Royal Mail could be taken over after it floats because a large percentage of its shares are likely to end up with short-term investors such as overseas institutions and hedge funds, senior City figures say.

The choice of Goldman Sachs to lead, with another bank, the process of finding buyers for the shares makes such an outcome more likely because the US giant has more of these investors – described by one fund manager as "quick buck merchants" – among its client base than other, more UK-focused banks, sources said.

Goldman and UBS are joint lead "book-runners" on the float. Their job is to find buyers for the shares, balancing the best price with the type of shareholder wanted by the client – in this case, the Government.

The fund manager said: "Will Royal Mail shares go to fund management firms that pay taxes in the UK, for example? Are they going to good long-term holders, or to quick buck merchants? With Goldmans as the lead book runner, I wonder if the Government realises that the shares could end up hedge funds' hands."

Another senior figure at a leading fund management firm said: "Royal Mail needs a long-term, supportive shareholder base, such as big UK institutions and funds that have a low turnover of their holdings – not hedge funds."

But sources close to the deal denied that hedge funds and overseas investors would be preferred, saying that Goldman had access to all types of investor, both in Britain and abroad, and that final decisions about who should be allocated shares would be made by ministers.

A takeover of Royal Mail in the future, which could lead to bigger profits for investors who buy shares in the flotation, is seen as more likely if overseas institutions and hedge funds end up with large stakes because they tend to be less concerned with holding shares for the long term than, say, British pension funds.

There is huge appetite for the shares among the public, with one broker, TD Direct, reporting at least six times as much interest in Royal Mail as in the recent flotation of Direct Line, which was of similar size.

There are fears that private investors will not receive all the shares they apply for, although the Government has indicated that they will get about 30pc of the total. "I'm committed to making sure smaller investors get their fair share," said Michael Fallon, the business minister.

Ten per cent of Royal Mail shares are being allocated to the company's staff, who will be unable to sell them for three years, or five if the want to take advantage of the tax breaks offered by the "share incentive plans" or Sips in which the shares will be held.

Goldman Sachs declined to comment.