Royal Mail To Pledge City Dividend Bonanza

[TrueBlueTerrier]

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The company will commit to big shareholder payouts when it embarks on its historic privatisation, Sky News has learnt.

By Mark Kleinman, City Editor

Royal Mail will pledge to pay hundreds of millions of pounds in dividends to City shareholders in an attempt to win private sector support for its £3bn privatisation, Sky News has learnt.

The company will make the promise as part of a Government statement announcing its intention to float the centuries-old postal operator on the London Stock Exchange, which is expected to be made towards the end of next week.

Sources close to the planned listing of Royal Mail said on Friday that the company was likely to commit to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.

A valuation of £2.5bn - £3bn would see employees' stake worth up to £300m

The details are still being finalised and could yet change ahead of an announcement, one insider said.

Royal Mail's board is understood to have backed the dividend pledge in principle and is expected to meet next Wednesday to agree further details relating to the privatisation.

The dividend pledge is designed to reassure major City institutions about the attractiveness of Royal Mail as an investment proposition at a time when the threat of industrial action has again reared its head.

Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a large chunk of its future profits as it continues to invest in the modernisation of the company.

The share giveaway to staff will encompass 10% of Royal Mail's equity

"There will be an explicit and robust statement on the company's dividend policy, as you would expect," said a person close to Royal Mail.

However, the commitment on dividend payouts may also ignite further hostility from unions which have criticised the sell-off plans and accused ministers of transferring Royal Mail's economic value to the private sector while having nationalised its historic pension liabilities.

The Communication Workers Union (CWU) is preparing to hold a vote on national strikes at Royal Mail, saying it believed industrial action was "inevitable" without compromise from the company on issues including pay, jobs, pensions and the impact of any sell-off.

The Communication Workers Union is preparing to vote on national strikes
The union has been lobbying for a 10-year pay and conditions offer that would be underwritten by the Government.

The result of the ballot will be revealed in early October and the first strike could be held on October 10 if there is a vote in favour of industrial action.

A lack of progress settling the row could potentially lead to a dispute spilling into the festive season, Royal Mail's most profitable and crucial trading period.

The conflict has escalated despite a commitment made in July by Vince Cable, the Business Secretary, to hand 150,000 Royal Mail employees free shares in the company likely to be worth roughly £2,000 per worker.

As a further sweetener, staff will be guaranteed a proportion of the retail element of the initial public offering (IPO).


Strikes could be held in October if employees vote for industrial action

The share giveaway to staff will encompass 10% of Royal Mail's equity, in accordance with the Postal Services Act that paved the way for the sell-off of the company two years ago.

At an overall valuation of between £2.5bn and £3bn, that would value the employees' stake at up to £300m.

Members of the public will also be able to buy shares in Royal Mail through intermediaries, a website and in Post Office branches.

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

The Government has vowed that the threat of a strike will not deter it from selling shares during the current financial year.

[Danelectro]

50% profit dividends and a long term legally binding agreement seem uneasy bed fellows.Could this be done with long term protections to jobs?

I never believed and dont think many members did that striking alone would stop privatisation but along with a policy announcement by Labour some gains may have been possible. So although most members are resigned to privatisation they could see the logic of giving the above a go.

If HQ have have given up on stopping privatisation and we are now balloting to secure a long term binding agreement then that seems as likely to be attained as striking on its own would stop privatisation.How many years beyond the 3 offered by Royal Mail is achievable or are we just looking at just 3 without strings?

Also it makes me wonder why we are even bothering with the conference motion to pressure Labour to pledge re-nationalisation if they form the next government.HQ most have had discussions with the Labour leadership and already know the answer to the motions question so why waste our time going down that road? Thats why I want to know the details of those discussions as it will decide whether I stop my political levy and after all thats what Mr Milliband wants.

[UnhappyGremlin]

Hardly unexpected.
I have made the point before, when it comes to these dividends, there will be little room for manoeuvre in terms of maintaining the levels which the shareholders will want to see.
It will be at the expense of the staff, pay cuts, job cuts etc. And the service will be obliterated. Then price increases. Asset stripping. Screwing us out of our pension, which has started already, but is a long way from finished.
The company will not be recognisable in a decade.

[fishtank]

50% profit dividends and a long term legally binding agreement seem uneasy bed fellows.Could this be done with long term protections to jobs?.

What seems ridiculous is that one of the main reason RM and the government cited for privatisation was access to private capital for investment.
The mantra was that the business had been starved of investment for years and could not be seen to take money from schools and hospitals.
Now it would seem that rather than invest the profits back into the company they intend to load the company up with debt and at the same time give the profits away to investors.

This is not the way to attract the kind of long term investor that Moya claimed she was looking for.

[britwrit]

On the faintest of positive notes, this could mean that the IPO is going quite poorly and right now they're absolutely desperate.

[nataddick]

I agree this is non-sensical, desperate attempt to lure investors into investing in RM. As Fish mentions, access to private capital is one of the major arguments for those in the pro-Privatisation camp, offered by Hooper, the Govt and RM management. This latest action appears at odds with the original case that was presented.

The key is the up to 50% - watch this space ! There is no doubt that the Govt can access capital at lower rates than any other category of investor. Contrary to what a lot of people think (including the author of London Calling) the Govt will use any proceeds from the sale of RM to reduce Govt PSBR. It will not be re-invested back into RM, with all those hospitals and schools taking a prior claim.

In my view, the Govt are very worried about the take up rate of the IPO - It is a given that 10% to employees has to happen or the sale goes no further per the Postal Services Act.. However, the Govt are talking about selling a majority stake (i.e. at least another 41% stake ). It is much easier to 'sell it' this way to the media and have another sale once the appetite for shares (or not) is tested.

So here is my imaginary scenario - staff get 10% free shares - other investors buy say, another 50% - so the Govt still owns 40%. Do the staff get up to a 50% dividend along with other investors ? What happens to the Govt's share of the profits - is it used to subsidise the dividends payable to other classes of investor? Not exactly a good deal for the taxpayer.

So the question is where does the much needed investment capital come from and do investors provide capital in proportion to their shareholding ? If so, would the Govt still need to invest in RM in proportion to it's shareholding ?

It makes good sense for an investor to provide capital today for a fixed ncome stream in the future from a successful thriving business with an expanding (parcels) market. So why doesn't the Govt continue to invest 100% in it's own business and give the taxpayer a share of the up to 50% dividend ?

[Cut Off King]

On a more positive note :

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

[UnhappyGremlin]

On a more positive note :

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

Not to mention the internal ones, i.e. us.

[barrowc]

What seems ridiculous is that one of the main reason RM and the government cited for privatisation was access to private capital for investment.
The mantra was that the business had been starved of investment for years and could not be seen to take money from schools and hospitals.
Now it would seem that rather than invest the profits back into the company they intend to load the company up with debt and at the same time give the profits away to investors.

This is not the way to attract the kind of long term investor that Moya claimed she was looking for.

Well said