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Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Deputy Business Editor
Saturday 28 September 2013
The Royal Mail was privatised in all but name last night as City investors placed orders for far more than the entire number of shares being offered.
Analysts said such huge demand meant the float could be priced at the top end of the price range, raising about £2bn for the Treasury and valuing the business at £3.3bn.
However, some observers said the Government may not seek the top end price despite seeing so much demand, as it will be keen for them to rise after the flotation in order for it to be seen as a success. Stockbrokers reported that requests from retail investors for details on how to subscribe before the 8 October deadline had flooded in “by the thousand”.
The Government has timed the float for 11 October - just weeks before the earliest date the Communication Workers Union can call its strike. The earliest its members can possibly take industrial action is 23 October.
“We are encouraged by the interest shown by potential investors so far,” said Business Secretary Vince Cable.
City firms will scoop fees of £50m, split between those advising the Government and the Royal Mail group. Many of the banks being paid directly by the state to handle the flotation are foreign: UBS and Goldman Sachs are lead advisers, with Barclays, Merrill Lynch, Investec, Nomura and RBS Europe also on board. The Government’s overall advice is being provided by Lazard.
City historians pointed out that this was £10m more than the fees paid to City banks in the last comparably-sized privatisation, Railtrack. That disastrous flotation, in 1996, was also handled by UBS (with the Government advised by SBC Warburg, which UBS later bought), as well as Merrill Lynch. Citigate, the financial PR firm at the time known as Dewe Rogerson, also advised on both privatisations.
Firms stressed that they were working for lower fees than usual due to the “prestige” of the giant nationalisation project.
Richard Hunter, of stockbroker Hargreaves Lansdown, said: “There has been significant interest from private investors...time will be short.”
About 70 per cent of the shares will go to institutional investors with the rest going to retail punters and Royal Mail employees. Staff will be given 10 per cent of the shares for free out of the Government’s holding, which is valued at up to £331m.
In a lengthy prospectus for potential investors, Royal Mail reveals that stamp prices will rise in line with RPI inflation for the next three years, and that it expects the volume of letters to fall by between 4 per cent an 6 per cent every year until the end of 2016. But parcel deliveries should increase by 4.5 to 5.5 per cent as shoppers move online.
The dividend for the full year will be a notional £200m, adding fuel to those claiming the float is handing taxpayer-owned assets to the City. For investors, it will represent an implied yield 6.1 to 7.7 per cent of its initial market value.
Despite having almost 170,000 employees, the Royal Mail will not be big enough to join the FTSE 100.
Cheque’s in the post how to apply
Private investors can apply for Royal Mail shares until 8 October. The minimum application is for £750, or £500 if you’re one of the organisation’s 150,000 employees.
The shares will be priced between 260p and 330p and you can apply through your stockbroker or sharedealing service or at www.gov.uk/royalmailshares.
Royal Mail workers must go direct through the website www.royalmailemployeeshares.co.uk
If you have trouble getting online, you can pick up paper application packs from major Post Office branches from Monday.
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