Royal Mail Sale Price Was Too Cautious - NAO

By floating Royal Mail on the Stock Exchange within this Parliament, the Government achieved its primary objective, according to the National Audit Office (NAO).

The spending watchdog considers, however, that the Department for Business, Innovation and Skills took a cautious approach to a number of issues which together resulted in the shares being priced at a level substantially below that at which they started trading. On the first day of trading, Royal Mail's shares closed at 455 pence, 38 per cent higher than their sale price. This represented a first day increase in value of £750 million for the new shareholders. Five months later, the shares were worth 72 per cent more than the sale price and have traded in the range of 455 pence to 615 pence.

Today's report recognises that, following substantial intervention by the Department, Royal Mail is now a profitable commercial business with access to private capital and intends to reward its shareholders with dividends. It is now less likely that the taxpayer will have to provide public support for the universal postal service.

The NAO concludes, however, that the Department could have achieved better value for the taxpayer. It conceded price tension for certainty that the transaction would be completed, by setting a cautious low end of the price range (260 pence). This was to achieve the Department’s priority to complete a sale within the time available, against the risks of industrial action and short-term market uncertainty; and to reflect the price indications of a small number of priority investors whose participation was seen as vital, as well the views of over 500 other potential investors.

(CVS/CD)