LONDON: Britain’s Business Secretary Vince Cable rebuffed accusations that the government underpriced the privatisation of Royal Mail and said yesterday the threat of industrial action had influenced the price-setting process.
Shares in the Royal Mail postal service have risen more than 50 percent to 500 pence since the government disposed of a 62 percent stake in the firm last week at 330 pence per share.
Defending the pricing, Cable said that some institutions in a group of around 20 potential investors used to gauge demand had pulled their support in the weeks running up to the sale.
Their withdrawal came after Royal Mail told the government it expected strike action over a pay dispute, Cable said.
“This change to the industrial relations position meant that there were some potential investors who stated that they were not willing to invest at all and many others who focused on the business and financial implications of strike action,” Cable said in a letter to a panel of lawmakers scrutinising the sale.
Ballot results on Wednesday showed that workers would strike on Nov. 4 unless a new pay deal was reached.
Despite those concerns, the eventual order book on the privatisation showed institutional investors had bid for 20 times more shares than were on offer.
The opposition Labour party said the high demand signalled taxpayers had been short-changed in the privatisation. Both Cable and the government’s independent advisers Lazard have been summoned to appear before a parliamentary committee to discuss the sale next month.
Cable said the upper end of the price range was raised from £3.1bn to £3.3bn during early valuation discussions because of “positive feedback” for the sale.
During the order-taking process, the unusual, but not unprecedented, step of raising the top of the range was discussed but ultimately rejected by the advising banks, Goldman Sachs and UBS, due to fears of alienating the government’s target group of long-term investors.
“This was not pursued based on an assessment of the composition of demand in the order book and an assessment of where demand would taper off, especially from informed potential long-term investors,” Cable said.
The government also considered selling a smaller stake to allow it to cash in on higher prices at a later date but opted against the plan because it would squeeze the number of shares available to institutions and could fuel volatility.