Royal Mail stake sale makes strong start
London, September 28, 2013
Britain's Royal Mail privatisation garnered orders for all of the shares on offer in the space of a few hours yesterday, sources said, marking a strong start for a sell-off that stands to flush up to £2 billion ($3.2 billion) into government coffers.
The sale would be one of Britain's most significant since John Major's Conservative government sold the railways in the 1990s and would give Royal Mail access to the private capital it says it needs to modernise and better compete in a thriving parcels market.
Kicking off the sale of the near 500-year-old company, the government said yesterday it would dispose of a majority stake in Royal Mail, offering shares at between 260 pence and 330p each and valuing the whole company at between £2.6 billion and £3.3 billion ($4.2 billion to $5.3 billion).
Hours later it had already received orders for all of the shares on offer, two sources close to the deal said, without giving an indication of where in the range those orders had come.
If an "over-allotment option", whereby more stock can be sold if there is strong demand, is exercised, the government's stake in the company could fall to as little as 30 per cent.
Analyst Robin Byde at brokerage Cantor Fitzgerald said that while the medium-term issue remained how fast Royal Mail can grow its parcels business to offset falling letter volumes, the valuation range made it attractive versus European peers such as Austrian Post and Belgium's bpost.
"The headline really is that it's priced to go," Byde said, estimating Royal Mail was valued on a forward price-to-earnings multiple of around eight times versus an average of about 10 for the European sector. "We would expect it to debut pretty well."
Royal Mail follows the initial public offering of bpost in June and comes after stronger equity markets have helped revive new listings in Europe this year.
European firms have raised $15.9 billion from flotations in the first nine months, three times the year-ago level.
The sale is the fourth time Britain has tried to privatise Royal Mail, which traces its origins back to 1516 when mail was delivered by horse from King Henry VIII's court.
Three sell-off attempts in the last 19 years have failed due to opposition from within the governing majority, which feared an electoral backlash from tampering with a revered institution whose red post-boxes are known around the world.
The latest sale effort has been criticised by the current opposition Labour party and unions, who yesterday sent out ballot papers for strike action.
The ballot will close on October 16, five days after Royal Mail is scheduled to make its stock market debut, with the earliest possible strike date being October 23.
Labour has come under pressure from its union backers and party activists to pledge to renationalise Royal Mail. While it has not ruled this out, Labour said it would be irresponsible to do so without knowing how much it could cost.
The government said it planned to pay a final 2014 dividend totalling £133 million, equating to a full-year payout of £200 million had the group been listed for the full year.
Based on the offer price range, that full-year payout gives Royal Mail an implied dividend yield of between 6.1 per cent and 7.7 per cent - making it attractive at a time when a regular UK savings account is yielding less than 3 per cent.
Britain has also agreed to hand 10 per cent of Royal Mail's shares to staff in the largest share giveaway of any major UK privatisation.
The government said it expected around 30 per cent of the shares on offer would go to individual members of the public, who must spend a minimum of £750 to invest in the company.
Royal Mail has annual revenue of more than £9 billion. It more than doubled profit to £403 million in the year to March 31.-Reuters
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