Royal Mail advisers defend sale price

By Neil Maidment and Kylie MacLellan

LONDON Wed Nov 20, 2013 1:11pm GMT

Pedestrians walk past the British Postal Museum at Mount Pleasant sorting office in central London, October 19, 2013. REUTERS/Paul Hackett

Pedestrians walk past the British Postal Museum at Mount Pleasant sorting office in central London, October 19, 2013.

Credit: Reuters/Paul Hackett

LONDON (Reuters) – Advisers on the British government’s privatisation of Royal Mail said the postal service could not have been sold at its current price, rejecting accusations that one of the biggest state sell-offs in years was done on the cheap.

On Wednesday banks including UBS and Goldman Sachs, which managed Royal Mail’s sale on the stock market, were summoned before a parliamentary committee to explain how they priced the near 500-year old company.

Royal Mail’s shares have rocketed by as much as 80 percent since Britain sold a 60 percent stake in October for 330 pence per share, sparking criticism from unions and opposition MPs. On Wednesday, the stock was trading at 539 pence.

The initial public offering (IPO) valued Royal Mail at 3.3 billion pounds ($5.3 billion).

Explaining to the Business Innovation and Skills committee why Royal Mail’s sale price now appeared cheap, Richard Cormack, co-head of equity capital markets at Goldman Sachs, said feedback from potential investors on what they would be prepared to pay and the large number of shares on offer were among factors that had determined the price.

“The average (trading) volume at the moment on a daily basis of these shares is about 1.3 million shares versus the 600 million shares that we placed at the time of the IPO. I don’t think that today’s price is indicative of where we could have placed 600 million shares,” he said.

UBS said at one point the lead banks had considered increasing the top end of the price range for the listing by 20 pence but said a looming threat of industrial action by Royal Mail staff and debt problems in the United States meant it decided not to.

Citigroup, Deutsche Bank, JP Morgan and Panmure Gordon, none of whom worked on the stock market listing, told the committee that in the months before the sale they had given the government equity valuations ranging from 3.7 billion to as much as 8.5 billion pounds.

However Citi’s Ben Story said it was “incompatible” to compare those higher valuations with the eventual lower price, due to the lack of detailed company information available to them at the time.

UBS said the differing valuations were also due to how each bank viewed risks linked to Royal Mail, such as the fact it had no proven track record of profit, was involved in litigation over sales tax, faced the threat of increased competition from rivals and the size of its pension fund.

($1 = 0.6210 British pounds)

(Editing by Erica Billingham)

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