Royal Mail to IPO by 2013?

Sources have admitted the Government's hoping to float Royal Mail - or at least part of it - by the end of next year, in a move that could be worth £4bn.

by Emma Haslett
Last Updated: 06 Nov 2012
Now that the Government’s got the Royal Mail pension deficit out of the way, things seem to be coming along nicely as far as the postal operator’s privatisation is concerned: according to the FT, the Coalition is planning to launch an initial public offering of the business some time towards the end of 2013. If it improves its finances, that is. But apparently, analysts reckon that without the £9.5bn pension deficit hanging around its neck, the business could be worth as much as £4bn. And the Government seems to think the public will be very interested: it’s ‘tell Sid’ all over again…

The Government has two options: that IPO (if/when the market for IPOs gets back into the swing of things), or it could choose to go down the private equity route too. But a ‘senior insider’ apparently told the FT that the ‘we see no reason why this company should not be IPO-able. Royal Mail is viewed with a high level of affection by the public.’ Translation: the Government will attempt to sell shares to the public, a la the 1986 campaign by the Thatcher government to sell off British Gas.

Either way, the likelihood is that the privatisation will begin with a partial sell-off, rather than a flotation (or otherwise) of the entire company. And let’s not forget Vince Cable’s plan to turn implement a John Lewis-style ‘partnership’ model, giving its employees a slice of the pie: apparently, they’ll get ‘at least’ a 10% stake once the privatisation is completed, while the Post Office network will stay in the hands of the public sector. For now, at least.

Now that the Government’s passed the right legislation and swallowed up that pesky pension deficit, the last piece of the jigsaw is for Ofcom to approve a shift to ‘lighter-touch’ regulation, which will give Royal Mail the freedom to set its own price for the ‘majority’ of its products. That includes a price rise of up to 50% on second-class stamps, and limitless price rises on first-class.

As we mentioned before, this is all subject to Royal Mail improving its finances: while the company is turning over £9bn, its profit margins aren’t particularly healthy. But there are signs things are getting better. Operating profit, for example, rose from £22m to £67m in the six months to September – although admittedly that was largely driven by success in its GLS European Parcels and Post Office businesses. And while its letters and parcels delivery business isn’t exactly doing a roaring trade, it did cut its losses from £55m to £41m. So that’s something.

Unions, of course, aren’t happy about the prospect of privatisation – but there’s a sense that, as one of the Coalition’s pet projects, it’ll do anything in its power to push it through. 

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