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Royal Mail underpriced, 'two investment banks warned' Royal Mail 'underpriced, two investment banks warned'
(about 3 hours later)
The government ignored two banks that valued Royal Mail at £5 billion, far more than shares were sold for, the Financial Times has reported.The government ignored two banks that valued Royal Mail at £5 billion, far more than shares were sold for, the Financial Times has reported.
The government sold 60% of the postal service last week for £3.30 per share, rising later to about £5. The government sold 60% of the postal service last week for £3.30 per share, but soon passed £5.
But at least two banks canvassed on the sale said that shares would be worth up to £5 each, the FT claims. At least two banks canvassed on the sale said shares would be worth up to £5 each, the FT claims.
Business Secretary Vince Cable has denied the Royal Mail was sold too cheaply. But business select committee member Nadhim Zahawi MP said he believed the government had got its sums right.
Before deciding to dispose of 60% of Royal Mail, the government sought opinion from investment banks bidding to manage the sale and selected Lazard as its independent advisor. The government sought opinion from investment banks bidding to manage the sale, and selected Lazard as its independent advisor, before deciding to dispose of 60% of Royal Mail at an Initial Public Offering (IPO) price of £3.3bn.
Goldman Sachs, Barclays, Bank of America Merill Lynch and UBS were appointed to lead the sale.Goldman Sachs, Barclays, Bank of America Merill Lynch and UBS were appointed to lead the sale.
Lazard has now been called in by the Commons Business, Innovation and Skills (BIS) select committee to answer questions on the pricing while Mr Cable said he blamed union strike threats for driving down the flotation value of the stock. Lazard has now been called in by the Commons Business, Innovation and Skills (BIS) select committee to answer questions on the pricing after shares had hit 508.3p, before closing at 502.5p.
In a letter to the committee, Mr Cable said: "There were some investors who stated that they were not willing to invest at all and many others who focused on the business and financial implications of strike action." Conservative MP Mr Zahawi, however, said he thought the government had acted wisely, given the risks of a flotation.
Shares had hit 508.3p, before closing at 502.5p. Initial Spike
He told the BBC News Channel: "The right thing to do is to bring in as many banks as possible. Ones that work closely with the Royal Mail, ones that advise the government.
"When you are trying to get a placing that large away, what you don't want is egg on your face if it doesn't get the investment community excited."
He added: "It feels to me that this story is a bit of sour grapes from a couple of banks who weren't very close to the business.
"The problem to remember as well is that the government still has a substantial shareholding that at some stage it will want to sell down."
Mr Zahawi warned of the danger that could be posed should the government face the prospect of selling its remaining stake at below the launch price and that it would be "far more negative than a successful IPO with shares going up".
It was common practice to see government sell-offs priced at around 20% below full value so early investors are not penalised.
He said: "Let's look at the share price in six months' time when the froth has gone away when you take out the initial spike and where the shares settle. When you look at comparators ie on dividend on yield on profitability, I think the price was just about right."
This further backing comes a day after Business Secretary Vince Cable blamed union strike threats for driving down the flotation value of the stock.
In a letter to the select committee, Mr Cable said: "There were some investors who stated that they were not willing to invest at all and many others who focused on the business and financial implications of strike action."
Speaking on Friday, Communication Workers' Union general secretary Billy Hayes said: "For Vince Cable to blame the low share price on the possible threat of industrial action is laughable.Speaking on Friday, Communication Workers' Union general secretary Billy Hayes said: "For Vince Cable to blame the low share price on the possible threat of industrial action is laughable.
"This appears to be Vince Cable's own 'froth' in a woeful attempt to deflect blame for losing the Treasury such a significant sum."This appears to be Vince Cable's own 'froth' in a woeful attempt to deflect blame for losing the Treasury such a significant sum.
The share price has broken the 500p per share mark today, now more than 50% higher than the level he approved for the float, meaning he's undervalued the company by £1.7bn and lost the taxpayer £900 million."The share price has broken the 500p per share mark today, now more than 50% higher than the level he approved for the float, meaning he's undervalued the company by £1.7bn and lost the taxpayer £900 million."
The Times has reported that the government's advisers believe demand was driven by hedge funds investing in Royal Mail on the belief that union settlements would be easier now the company is predominantly privately owned.The Times has reported that the government's advisers believe demand was driven by hedge funds investing in Royal Mail on the belief that union settlements would be easier now the company is predominantly privately owned.