Royal Mail Said to Narrow Pricing of IPO to Top of Range

Photographer: Simon Dawson/Bloomberg

The privatization of 360-year-old Royal Mail will be the biggest in the U.K. since former Prime Minister John Major broke up British Rail in the 1990s, and while letter volumes are falling, the business has refocused on those markets spurred by a trend toward web-based purchasing. Close

The privatization of 360-year-old Royal Mail will be the biggest in the U.K. since... Read More

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Photographer: Simon Dawson/Bloomberg

The privatization of 360-year-old Royal Mail will be the biggest in the U.K. since former Prime Minister John Major broke up British Rail in the 1990s, and while letter volumes are falling, the business has refocused on those markets spurred by a trend toward web-based purchasing.

The U.K. government is offering shares of Royal Mail Group Ltd. at a price of 300 pence to 330 pence ($4.84-$5.33) apiece amid strong demand for the initial public offering, two people familiar with the matter said.

The price range has been narrowed from an initial span of 260 pence to 330 pence, according to the people, who asked not to be named while the offering is under way. The sale closes to investors on Oct. 8 before trading commences on Oct. 11.

The IPO was opened on Sept. 27 and fully subscribed within hours, mainly on institutional demand, people with knowledge of the situation have said previously. The privatization of 360-year-old Royal Mail will be the biggest in the U.K. since former Prime Minister John Major broke up British Rail in the 1990s, and while letter volumes are falling, the business has refocused on those markets spurred by a trend toward web-based purchasing.

“What investors likely find interesting with Royal Mail is the remaining restructuring potential,” said Marcus Poppe, a fund manager at DWS in Frankfurt, adding that this sets it apart from companies revamped by private equity firms and then taken public. DWS, which manages 160 billion euros ($218 billion) in Germany, is Deutsche Bank’s retail asset management arm.

Market Value

The volume of IPOs in Europe has tripled in the year-to-date versus 2012, data compiled by Bloomberg show, as investors are drawn by strengthening economies.

Royal Mail will have a market capitalization of between 2.6 billion pounds and 3.3 billion pounds once listed, based on the initial range, with 401 million to 522 million shares due to be sold, equating to as much as 52.2 percent of its capital.

The postal service has a 53 percent share of U.K. parcel deliveries and reported revenue of about 9.1 billion pounds in fiscal 2013. Its operating profit, after some costs, was 440 million pounds.

One of the country’s largest employers with more than 150,000 staff, Royal Mail has shifted away from letters to more lucrative package shipping, competing with TNT Express NV (TNTE) of the Netherlands and Deutsche Post AG (DPW)’s DHL Express.

The government, which decided in 2011 to privatize Royal Mail, will retain between 37.8 and 49.9 percent of stock, assuming no over-allotment options. A further 15 percent of shares may be made available beyond the base offer.

About 70 percent of the base offer is expected to go to institutional investors and the rest to retail buyers and Royal Mail workers.

Bookrunners for the sale are Goldman Sachs Group Inc., UBS AG, Barclays Plc and Merrill Lynch & Co., with Investec Ltd., Nomura Bank International Plc and RBC Europe Ltd. lead managers, while the government is being advised by Lazard Ltd. (LAZ)

To contact the reporters on this story: Kari Lundgren in London at klundgren2@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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