Royal Mail IPO price to be investigated

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The banks accused of undervaluing Royal Mail (RMG) ahead of its initial public offering (IPO) may have their fee docked by up £4 million unless the share price settles closer to the offer price, the Daily Mail has reported.

Despite falling in the last week, Royal Mail's current share price of 550p is still two thirds higher than the 330p offer price. But business secretary Vince Cable has insisted that the price needs three to six months to settle.

Investment banks Goldman Sachs and UBS, which advised the government on the offer price, will have to justify their valuation to the Business Innovation and Skills committee.

Also appearing before the committee at hearings on 20 and 27 November will be Cable and a representative of independent adviser Lazard, as well as representatives of other investment banks which provided higher valuations for Royal Mail earlier in the IPO process.

JPMorgan suggested a valuation of up to £10 billion when pitching for the right to sell Royal Mail shares, Deutsche Bank and Citi valued the postal service at between £6.4 billion and £7.3 billion, and Panmure Gordon indicated a valuation of up to £4.7 billion.

The Daily Mail has reported that the government could withhold around £4 million of the fee owed to the underwriters if it believes they provided a valuation which was too low.

The fee comprises 1.2% of the £1.3 billion raised by selling shares to institutional investors, but 0.3% is discretionary and will depend on share-price performance since the sale.

The National Audit Office is also investigating the deal, which has attracted criticism from the Labour party and the unions. It has said it will publish its findings in the spring.