Royal Mail A Success? Not Yet!

[TrueBlueTerrier]

http://my.telegraph.co.uk/the_railers/e ... s-not-yet/" onclick="window.open(this.href);return false;

The Royal Mail privatisation is deemed a success because the offer was over-subscribed and the shares opened at a large premium on their first day of trading. Well yes it has been a great success for the highly paid advisers and those share dealers who grabbed a large allocation and were/are able to realise a quick profit. But as to whether it has been a success for the country, well the jury is still out on that.

For years now Royal Mail has been struggling to provide a decent service against all the other forms of communication with which it was in competition. Massive investment in new technology was required so this Government did what all previous Government’s involved in privatisations have done. It decided that Royal Mail would benefit from access to the capital markets. Once again of course a Government has displayed a total lack of understanding of how capital markets work.

Professional investors like institutions invest only in the growth potential of companies, they do not invest in the refurbishment and maintenance of companies’ assets and systems . The over-subscription of the Royal Mail shares and the premium on the first day demonstrated not the strengths of the company but that the shares were priced at a big discount to the market in general and communications groups in particular. This is a result of the Government taking advice from stockbrokers and investment brokers who were desperate to ensure that the offer was not under-subscribed and left with the underwriters.

The object was to get the company out of State ownership and to relieve the Treasury of responsibility to finance further capital investment, without embarrassing those who picked up gigantic fees for handling the flotation. You only have to look back at previous privatisations to see how disastrous previous misjudgements of capital markets can be. The most notable were the water companies and Railtrack.

None of these were fully fit for the purpose of succeeding as stand-alone businesses when floated. The water companies had leaking pipe-lines and reservoirs while Railtrack had archaic signalling systems and dangerous tracks. In neither case were the professional investors prepared to step up and fund what were maintenance and refurbishment projects. So, after having made a lot of rich City people even richer the Treasury, after privatisation, still had to stump up the capital to make the businesses fit for purpose.

Some businesses can be privatised as successful stand alone entities. British Airways being the best example. When it was floated on the Stock Exchange it was already one of the best invested and efficient airlines in the world. All the professionals knew that they were unlikely to be called upon to put more money into “rescue rights-issues” at any time in the foreseeable future. Its one of the harshest truths in business that it is easy to attract funding when you are not desperate for it.

This latest privatisation can only really be deemed a success when it is clear that Royal Mail will never have to make further calls on the State purse in order to remain competitive and competent as a fully independent business. That is likely to take several years.

[El-Bandito]

What Royal mail need now is someone with vision (anyone but Moya).Buy out Tnt,ukmail and all the other parasites that call themselves delivery companies. Royal mail holds ALL the best cards here. This way we keep almost all the staff we have now. No loss of jobs in processing, delivery etc. All management can fill all the part time work that will be available, ie D.O. supervisors.7-11 should do it. If they don't like it they know where the door is. Though i am certain our investors have already thought most of this up already. After all if the privatisation of British Telecom was anything to go by, then the management already know what's coming. Karma is a beautiful thing.