Froth goes, but Royal Mail sale was flawed

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A year after privatisation at 330p, Royal Mail shares stand at 402p. That’s an improvement of 22%, unexceptional by the standard of past government sell-offs. So was Vince Cable right all along? Was the state’s sale of a 60% stake in the postal service really a rip-roaring success that delivered fair value to taxpayers?

“Those who rushed to judgment on the Royal Mail flotation a year ago are having to think again,” said the business secretary himself in the Independent last week .

He has a point about the share price, of course. The peak was 618p in January but the “froth” has blown away, just as he said it would. Investors have realised that the rise of online shopping is not a free lunch for parcels firms. The delivery market is over-supplied and Amazon, Royal Mail’s biggest customer, is trying to build its own network.

Meanwhile, Ofcom, the regulator, is so far unmoved by the cry that TNT is unfairly “cherry picking” by planting its postmen in densely-populated cities while ignoring the hills, dales, highlands and islands, all of which Royal Mail must serve at a uniform price.

Yet the criticism of the privatisation – at least in this column – was never solely about price. It was the process that was flawed.

First, it was naive to sell 60% in a job-lot if one aim was to protect the public purse. Royal Mail was always going to be hard to value. It was operating under a new regulatory regime; it owned lots of freehold property of disputed value; its cost of borrowing would plunge when it escaped the harsh terms imposed by government. To minimise the risk of a mis-pricing, it would have been better to sell, say, 20%, let the price settle and then offer more shares.

Second, the government, led by its City advisers, locked itself into a traditional “book-building” process. There was little freedom to react if demand was strong. An auction might have achieved a better result.

Third, the ambition to endow Royal Mail with a group of long-term “cornerstone” investors was well-intentioned but the execution was cack-handed. In no sense could the likes of New York hedge fund Och-Ziff, one of the financiers behind the Glazer family’s leveraged takeover of Manchester United, be considered long-termists.

In short, the privatisation price looks better with the passage of 12 months. But the process behind the flotation still looks haphazard and too dominated by City advisers. The review of how the government sells assets, now in train under Lord Myners, is still needed.

Icahn jars on Apple

Blimey, Carl Icahn goes on a bit. The activist investor took 4,500 words to say he’d like Apple to buy back more shares because he thinks they’re cheap. Apple’s share price has improved 50% since Icahn started buying, so he has more right than most to opine about value, but some of the detail in his letter jars.

“Apple has not announced plans for a TV set and may never do so,” begins one section. That doesn’t prevent Icahn asserting that he expects the company to sell 12 million large UltraHD TV sets in 2015 and 25 million in 2016 at $1,500 (£930) a pop. It’s all part of his argument for why the shares should trade at $203, not $101.

Well, OK, if one could be confident about those TV estimates, $203 may not be silly. But that’s the problem with tech stocks: some products in development never make it. If there’s spare cash (and, at Apple, there is), the best method is to give the shareholders a special dividend and let them decide for themselves if they want to back their hunches.

Next step for Cousins

As pointed out here earlier in the week, it’s very odd that Richard Cousins, chief executive of Compass Group, thinks he has enough time to be a non-executive director of Tesco. He quit the same position at Reckitt Benckiser this year saying he needed to concentrate on the day job.Now the rumour mill suggests Cousins could be the next chairman of Tesco, which is definitely not a part-time posting.

Is he being lined up as Sir Richard Broadbent’s successor? As it happens, the rumour doesn’t ring true – at 54, Cousins probably has several years left on the clock as a chief executive. All the same, Compass investors would surely want to know at this point if their successful boss is committed to their company.

He can’t comment on the Tesco chairmanship, obviously. But he could explain why he didn’t tell Tesco what he told Reckitt.