The U.K. government said it will sell a majority stake in 360-year-old postal service Royal Mail Group Ltd. via an initial public offering by the end of March.
Staff will get 10 percent of the shares for free, on condition they hold them for three years, and retail investors will be offered stock on the same terms as institutional buyers, Business Secretary Vince Cable told Parliament in London today.
“We will retain flexibility around the size of the stake to be sold,” Cable said. “This will be influenced by market conditions, investor demand and our objective to ensure overall value for money for the taxpayer.”
The sale will be the largest U.K. privatization since then Prime Minister John Major broke up British Rail in the 1990s. One of the country’s biggest employers with 159,000 workers, Royal Mail has sought to adapt its letter-focused network to more lucrative package shipping in the face of competition from TNT NV (TNTE) of the Netherlands and Deutsche Post AG (DPW)’s DHL Express.
Royal Mail Chief Executive Officer Moya Greene said she welcomed a move that will make it easier to tap capital needed to operate as efficiently as European counterparts such as Deutsche Post and Austria Post, which deliver over 95 percent of letters the following day, according to the U.K. company.
“Our employees will have a meaningful stake in the company and its future success,” she said. “The public will have the opportunity to invest in a great British institution.”
Chuka Umunna, business spokesman for the opposition Labour Party, said that Royal Mail -- likely to fetch at least 2 billion pounds ($3 billion) according to a person familiar with the sale plan -- was being “sold off on the cheap” to raise cash following the failure of government economic strategy.
The Communication Workers Union condemned the IPO plan as “illogical and impractical,” saying cash for investment could be raised just as easily under public ownership. The labor group added in a statement that it will fight the sell-off and that strike action is inevitable without legally binding assurances on terms and conditions that will apply following the flotation.
Royal Mail said it’s open to creating a binding contract that would safeguard “pay and protections” for a set period.
The postal service’s operating profit more than doubled to 403 million pounds in the year to March 31 as growth in Internet sales spurred deliveries. Parcel revenue rose 9 percent as overall sales advanced 5 percent to 9.28 billion pounds.
The decision to make shares available to retail buyers and institutions on the same basis contrasts with the privatizations of the 1980s -- such as British Gas and British Telecom -- when stock sales were aimed primarily at the public in a concerted effort to broaden share ownership. An advertising campaign accompanying the sale will also be muted.
The business department appointed UBS AG (UBSN) and Goldman Sachs Group Inc. (GS) as joint global coordinators and joint bookrunners on May 29, Barclays Plc as joint bookrunner and sponsor, and Bank of America (BAC) Merrill Lynch as joint bookrunner for the deal.
Investec Plc (INVP), Nomura Holdings Inc. (NMR) and Royal Bank of Canada will take junior roles. Total fees if the deal goes ahead will be in the region of 10 million to 15 million pounds, a person familiar with the plans said July 3.
A formal intention to float will be issued in due course, the government said today.