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Cable Defends Royal Mail IPO Valuation From Lawmaker Criticism

U.K. Business Secretary Vince Cable defended the decision to sell Royal Mail Plc (RMG) shares at 330 pence as lawmakers questioned whether taxpayers had lost out.

Giving evidence to Parliament’s Business Committee, Cable said his department relied on the advice of bankers that institutional investors would have walked away had the government demanded more than 330 pence. The stock has surged more than 70 percent since it began trading last month.

“It’s quite possible that had we attempted to redo this to get that higher margin, the price could eventually have been lower,” the business secretary said. “The whole thing could have failed.”

The U.K. postal service said today that first-half earnings almost doubled, spurred by parcel deliveries for online retailers. Operating profit after some costs for the six months ended Sept. 29 rose to 283 million pounds ($459 million) from 144 million pounds a year earlier. Sales climbed 3.8 percent to 4.52 billion pounds, with parcels accounting for 51 percent of group revenue.

Royal Mail shares rose after the results and were trading at 569.5 pence at noon London time, up 7 percent on the day.

Business Minister Michael Fallon, who was in charge of the sale and gave evidence alongside Cable, said that threats to strike by the Communication Workers Union in the run-up to the initial public offering had increased uncertainty around it.

‘Too Early’

“We could not have got a higher price for the 600 million shares we were selling,” Fallon said. “The taxpayer hasn’t lost anything. It’s too early to make that judgment.”

Cable and Fallon said there were a wide range of views among analysts on Royal Mail’s value, with some predicting the shares will fall below the offer price.

Asked whether the bankers involved in the sale would be awarded a discretionary bonus, Cable said it was too early to say. “The decision hasn’t been made and won’t be made for some considerable time,” he said. “We’re talking months and possibly years.”

Bookrunners for the IPO were Goldman Sachs Group Inc., UBS AG (UBSN), Barclays Plc (BARC) and Merrill Lynch & Co., with Investec Ltd., Nomura Bank International Plc and RBC Europe Ltd. as lead managers. The government was advised by Lazard Ltd. (LAZ)

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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