On the day shares in Royal Mail hit 500p for the first time, Vince Cable, the Business Secretary, tried to defend himself against claims he cost taxpayers hundreds of millions of pounds by undervaluing the privatised postal operator.
The latest share-price surge means stock in the 500-year-old postal operator is now worth £1.7bn more than the Government received for it, triggering fresh allegations that Mr Cable and the Department of Business had priced Royal Mail too cheaply.
But Mr Cable yesterday wrote to Adrian Bailey, the chairman of the Business, Innovation and Skills Select Committee, claiming that the Communication Workers Union’s threat to strike meant City institutions would not pay any more for the Royal Mail.
He said the union’s talks of industrial action “meant there were some potential investors who stated that they were not willing to invest at all” and others whose mixed sentiment had led to the 330p price decision. Yet the Government’s own details of the float revealed it was 20 times oversubscribed by City investors.
Mr Cable also tried to deflect criticism of the £3.3bn privatisation on to the particular City institutions that the Government hired for advice, Goldman Sachs and UBS, the lead banking advisers, and Lazard, which provided independent guidance to ministers. “Goldman Sachs and UBS recommended [the] price range following an exhaustive process culminating in a final price range recommendation provided ahead of the publication of the prospectus,” Mr Cable wrote.
“Our independent adviser (Lazard) endorsed the price range. In August 2013, as the date of the IPO approached, this list of potential investors was narrowed down to… approximately 20 investors, selected on the basis of feedback gathered during the investor engagement process and, in particular, their understanding of the risks inherent in the company’s industrial relations.”
The Business Secretary has been recalled by MPs to give fresh evidence to the Commons committee on the privatisation of Royal Mail next month, after Mr Bailey, the Labour chairman of the committee, said early evidence of the share price “vindicated” some of the concerns about its valuation. Executives from Lazard will also be hauled before MPs to be questioned.
In his letter to the committee, the Business Secretary also hit back at claims by Chuka Umunna, his Labour counterpart, that Royal Mail’s property portfolio has been undervalued. Royal Mail owns unusually large sites in prime areas around London and elsewhere in the UK, but its prospectus listed the total value of its freehold properties at £787m and leasehold properties at £318m.
It highlighted three sites in London – Mount Pleasant, Nine Elms and Paddington – as being “surplus” to requirements. Mr Umunna claims they are worth between £500m and £1bn each.
Mr Cable responded: “Taking into account the overall position of the surplus portfolio and the relative immaturity of these sites in terms of actual development, a combined value of £330m (as suggested in one of the equity research analyst reports) appears at the top end of any likely range.”
Mr Umunna pointed out that Mr Cable’s letter follows his dismissal last week as “froth” concerns that taxpayers had been short-changed.