Royal Mail privatisation 180m underpriced, review says

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The government made £180m less from the £2bn sale of Royal Mail than it could have, a report commissioned by Business Secretary Vince Cable has said.

It says shares could have been valued up to 30p more than the flotation price of 330p because of the high level of demand from banks and individuals.

However, former City minister Lord Myners, who led the report, said this would have involved "substantial" risk.

MPs have suggested taxpayers lost out by £1bn in the 2013 privatisation.

But the report calculates the untapped potential revenue to be lower than that.

Lord Myners was keen to stress that pricing a share sale is a difficult process. Speaking on BBC Breakfast, he said it was a "complicated transaction" and that "if any money had been left on the table it was pretty small".

He said that lessons could be learned about how to make the process less complicated.


His findings form part of his review into the way the disposal of shares owned by government are conducted.

The probe was ordered by Mr Cable after a National Audit Office review into the privatisation of Royal Mail said too much emphasis was put on rushing the sale - the initial public offering (IPO) - at the expense of value for money.

Lord Myners disagreed - saying this view was hard to stand up.

Shares accounting for 60% of Royal Mail were sold in the flotation. A further 10% of stock was given to the company's employees, while the government retained a 30% stake.

Royal Mail shares leapt on their first day of trading in October 2013 by 38%, rising later to a peak of 615p. They now stand at 394p.

Lord Myners' report says that a higher price could have been achieved but that "the consensus appears to be that this was the order of 20p-30p per share... equating to proceeds to government at IPO of £120-180m".

It adds: "For the avoidance of doubt, we do not believe that a price anywhere near the levels seen in the aftermarket could have been achieved at listing."


'Cautious approach'
In his report, Lord Myners said the privatisation, which raised a total of £2bn, was handled "with considerable professionalism" and that the complicated sales process was partly to blame for the sale at a lower than optimum price.

He added: "The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process.

"We found no evidence to challenge the general assertion that an IPO price greater than 350-360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made."

Mr Cable said he was "grateful" for the report.

"It contains a number of significant proposals which could make the general process of future sales more transparent... In particular [financial regulators] should explore how digital auctions could, in certain circumstances, make the sale process much more flexible," he said.

In July, a report from the Business, Innovation and Skills select committee suggested Royal Mail shares had been undervalued and its property mispriced, meaning the sale could have raised an extra £1bn.

The Department for Business, however, said the report contained "factual errors and misunderstandings", with Mr Cable commenting that the MPs had the "benefit of hindsight".

"We sold at a price that was regarded as the best that could be achieved in the context in which we sold it," Mr Cable said.