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Royal Mail Said Valued at as Much as $6.9 Billion in IPO

Photographer: Simon Dawson/Bloomberg

A Royal Mail Group Ltd. employee carries a bundle of letters during his delivery round in London on May 30, 2013. Close

A Royal Mail Group Ltd. employee carries a bundle of letters during his delivery round... Read More

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Photographer: Simon Dawson/Bloomberg

A Royal Mail Group Ltd. employee carries a bundle of letters during his delivery round in London on May 30, 2013.

Royal Mail Group Ltd., the 360-year-old U.K. postal service, may be valued at as much as 4.3 billion pounds ($6.9 billion) when it goes public, said people briefed on the estimates.

The British firm’s equity value, which excludes debt, could range from 2.8 billion pounds to 4.3 billion pounds based on research from the banks preparing the IPO, said the people, who asked not to be named because the talks are private. The range is wide because, at the top end, some of the analysts are using more optimistic growth projections for the company’s earnings as well as varying estimates on where Royal Mail should trade relative to its peers, one of the people said.

The postal service’s sale would be the biggest U.K. privatization since former Prime Minister John Major broke up British Rail in the 1990s. Royal Mail, one of the country’s largest employers, has shifted away from letters to more lucrative package shipping amid competition from TNT Express NV (TNTE) of the Netherlands and Deutsche Post AG (DPW)’s DHL Express.

“If they didn’t have parcel, they would have an even lower valuation,” Satish Jindel, president of SJ Consulting Group, a logistics advisory firm, said in a telephone interview. “Revenue for parcel is much higher than letters, and it doesn’t take much more effort to deliver it. That is where the future will be.”

A spokesman for Royal Mail declined to comment.

Higher Margins

Profit margins for package delivery are at least 25 percent higher than for letters, Jindel said. This helped Royal Mail double its profit in the year through March even as daily letter volume dropped.

Royal Mail’s package-shipping business increased about 5 percent this year to 1.46 billion parcels, according to a company report from May, while the number of daily letters slipped 8 percent to 58 million. Operating profit for the 52 weeks ended March 31 was 403 million pounds, compared with 152 million pounds a year earlier.

The U.K. government said on Sept. 12 it would sell a majority stake in Royal Mail “in the coming weeks.”

Companies have pursued listings in Europe this year to take advantage of improving economic prospects and surging stock markets. Both the Stoxx Europe 600 Index and the FTSE 100 Index have gained more than 10 percent this year.

The share sale is being prepared even as postal workers threaten to strike in protest of the listing. The Communication Workers Union, or CWU, is holding a ballot for employees on whether to strike and the results of the vote will be announced on Oct. 16, with the earliest possible strike on Oct. 23, according to its website.

The offering would follow the June listing of BPost SA (BPOST), Belgium’s former postal monopoly. UBS AG (UBSN), Goldman Sachs Group Inc. (GS), Barclays Plc and Bank of America Corp. are among banks on the Royal Mail sale. Lazard Ltd. (LAZ) is advising the government.

To contact the reporters on this story: Ruth David in London at rdavid9@bloomberg.net; Aaron Kirchfeld in London at akirchfeld@bloomberg.net

To contact the editor responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net

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