Royal Mail’s share price tops ₤5

on Oct 18, 2013
Updated: Oct 17, 2019
Listen Friday October 18th: Royal Mail’s share price (LON:RMG) today surged by more than four percent, closing slightly above ₤5 after business secretary Vince Cable admitted he was told before the IPO that the price could soar.

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Cable said bankers at UBS, Goldman Sachs and Lazards, who handled the floatation, persuaded ministers not to raise the offer price above 330.00p. He added that the threat of strikes by the Communication Workers Union frightened some of the investors. That is also why the indicative price range of the initial public offering was set at 260p to 330p, with the lower end factoring in possible escalating industrial relations problems.

“Our long-term strategy to safeguard the universal service and deliver value for money for the taxpayer involves not only getting good value for the initial stake sold but also getting good value for the residual stake held by government [30 per cent], and leaving Royal Mail in a strong, sustainable position capable of accessing the capital markets in the future,” Cable wrote in a letter to the Business, Innovation and Skills Committee, asking it to postpone its judgement (MPs to launch an inquiry into the Royal Mail IPO until the government has fully divested from Royal Mail.

Cable also explained in detail the process that led to the floatation and which involved educating a group of long-only investors on the business, its operations and its revenue streams. By August, this group was composed of only 20 investors who were key to the government’s understanding of the likely valuation. In the letter, Cable attempted to deal with criticism over the valuation of the company’s property assets, especially in central London. He argued that considering the lack of development planning permission and “the relative immaturity” of sites including a 14 acre site in Nine Elms, Battersea, some of the valuations suggested by third party analysts appeared to be “at the top end of any likely range”.

!m[Vince Cable attempts to justify IPO pricing](/uploads/story/6179/thumbs/pic1_rm_inline.jpg)
Moya Green, chief executive of Royal Mail, has backed the government’s valuation, saying that the parcel and letter delivery business was not listed too cheaply. Some government officials have said that the demand pushing the share price had come from hedge funds, which were betting that a settlement with the unions will be easier now that Royal Mail was in the private sector.

Mariod Dunn, campaign director at Save Our Royal Mail, disagreed with Cable’s statement that if the government had priced the shares above 330.00p demand would have dropped. “This is nonsense. Mr Cable is directly responsible for the taxpayer losing hundreds of millions of pounds,” Dunn said.
**As of 16.50 BST buy Royal Mail shares at 506.50p.**
**As of 16.50 BST sell Royal Mail shares at 506.00p.**
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