Official Report - BIS - Taxpayers Lost out on RM sale

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Taxpayers lost out on Royal Mail sale, says BIS Committee

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The Government achieved its aim of floating Royal Mail on the stock exchange, but their fear of failure and the consequent low issue price of shares means taxpayers look like missing out on significant value, says the Business, Innovation and Skills Committee in a report published today.

Report: Royal Mail Privatisation
Report: Royal Mail Privatisation (PDF)
Inquiry: Royal Mail Privatisation
Business, Innovation and Skills Committee

The Committee also expressed concerns that Government has failed to get an adequate and appropriate return for taxpayers on now privatised Royal Mail assets, including multi-million pound sites in London.

The Committee also concluded that the advice Government received on the Royal Mail sale wasn’t up to standard. The Committee found the Shareholder Executive, Lazard, the Government’s financial adviser, and UBS and Goldman Sachs (the Government’s Global Coordinators) failed to gauge demand at higher price levels and didn’t give appropriate consideration to maximising value for money for the taxpayer.

Committee Chair
Adrian Bailey MP, Chair of the Business, Innovation and Skills (BIS) Committee, said:

It’s not at all clear that the Government’s sale of Royal Mail has brought an adequate and appropriate return for taxpayers. The basic facts are that the offer price was 330p per share, the price has risen as high as 618p per share, and now stands around 473p. The Government cannot blithely dismiss as ‘froth’, our Committee’s concern that the low issue price of this prime public asset has cost the taxpayer around a billion pounds.

The Committee was also disturbed that the Government may have failed to reap the benefits of the sale of Royal Mail assets included at privatisation. These assets included 3 sites in London valued by BIS at around £200 million but reported by the NAO to possess a ‘hidden value’ worth £330m to £830m. The Committee found the Government ignored established NAO recommendations that these assets should either be removed from the privatisation process or that claw back provisions be inserted on the future sale of the properties.

Adrian Bailey MP, Chair of BIS Committee, said:

This was the most significant privatisation in years. We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares. The Government’s inclusion of Royal Mail’s ‘surplus’ assets in the sell-off, without the prospect of clawing back future proceeds, may also mean the taxpayer losing out once again.

A key objective highlighted by the Secretary of State was to ensure Royal Mail would be owned by long-term investors. Yet, the Committee found that many of the priority investors bought cheaply and sold quickly at a profit. The Committee concluded that the current ownership of Royal Mail by long-term investors has little to do with the Secretary of State’s actions. In order to establish greater clarity on the issue, the Committee calls on the Government to publish a list of the preferred investors which includes information on which investors sold their shareholding, when, and at what share-price.

The Committee finds that the Government was not well-served by its advisers. While no evidence of inappropriate behaviour was established regarding the external companies advising the Government, the Committee recommends companies advising the Government on share issues should be excluded from becoming a preferred investor.

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Offer Price
2. Ministers placed great emphasis on the negative aspects of the industrial relations
between Royal Mail and the Communications Workers Union, and in particular on
the threat of strike action. While this was a significant factor for investors, we believe
that the Government over-emphasised the risk. The share price before, during and
after the Union’s acceptance of a pay deal demonstrates that industrial relations were
less of an issue for the market than they were for Government. (Paragraph 27)