RM hearing turns into game of pass the parcel with MPs

[TrueBlueTerrier]

Royal Mail hearing turns into game of pass the parcel with MPs

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At times in Wednesday's the Business Select Committee’s hearing on the Royal Mail flotation resembled the children’s party game, pass the parcel.

MPs struggled to pin down why Royal Mail was sold for £3.3bn but is valued by the market at £5.5bn.

The bankers said their 330p-a-share offer price was based on “fundamentals” and was in line with comparable delivery companies, such as Deutsche Poste. But from the moment the panel of five bankers and one analyst said that their initial valuations ranged from £3bn to £8.5bn, it was clear that it wasn’t a completely objective assessment.

Goldman Sachs and UBS, whose numbers were used in the historic privatisation, said it was down to Royal Mail’s “unique risks”. The “most significant” of which was the threat of a postal strike, but there were fears of an imminent US default, too.

Meanwhile, Royal Mail’s lack of “historic profitability,” together with its large pension fund, had all “weighed” on the IPO price. The bottom line, said Goldman and UBS, is that institutional investors would not have bought the stock at more than 330p a share.


Which begged the question as to why the IPO was swamped with demand from the start, not least from the blue-chips? More than 800 institutional investors applied for stock, but 500 missed out.

Adrian Bailey, chairman of the committee, gave the advisers a chance to pass the parcel again: if banks had not “misled” the Government on their valuation, perhaps they themselves had been duped by investors?

Doubtless MPs can be forgiven for seeing City conspiracies everywhere, but the solution to the Royal Mail riddle seems simpler than that.

The bankers are right that Royal Mail was a unique and difficult IPO. The process started back when the company was seen as a borderline basket case and the economy didn’t look much better. It was only in the last mile that Moya Greene’s radical overhaul conflated with a roaring economic recovery to create first-class IPO conditions. The bankers either failed to spot the strength of the surge, or just didn’t keep up with it.

They told MPs that the sentiment could have gone either way, but did they miss signals picked up by others?

UBS revealed that TCI, the hedge fund that is now the biggest shareholder in Royal Mail, was “marketed to, was seen by the management, and had an order in the book”. In other words, TCI wasn’t a gatecrasher and advisers could have deduced a lot from its interest. Meanwhile, the grey market was going through the roof, despite the deliberately low-key marketing effort.

As for the macro fears, investors clearly weren’t concerned about either a US default or a postal strike. For £13m, could the banks have delivered more for taxpayers, as the MPs claimed? Hindsight is a wonderful thing.

[demon]

there is no one to compare royal mail to we are the best

[Lounge Lizard]

there is no one to compare royal mail to we are the best

but undervalued by 40%.

[k979aaa]

there is no one to compare royal mail to we are the best

but undervalued by 40%.

Staff are even more undervalued!

[UnhappyGremlin]

there is no one to compare royal mail to we are the best

but undervalued by 40%.

Staff are even more undervalued!

Which I hope isn't reflected in the new deal....