Britain to float Royal Mail within weeks
LONDON (Reuters) - Britain embarked on its largest privatization in decades on Thursday as the government unveiled plans to sell the majority of the near 500-year-old state-owned Royal Mail postal service.
The Department for Business said a stock market flotation would take place in coming weeks, giving the public a chance to buy into the postal network. Ten percent of the shares will be given to Royal Mail IPO-RMG.L staff.
It said the size of the sale would depend on market conditions and analysts suggested the flotation could value Royal Mail, which traces its roots to a service founded by King Henry VIII in 1516, at between 2 and 3 billion pounds ($3-$4.7 billion).
"HM Government will retain flexibility around the size of the stake to be sold, as this will be influenced by market conditions at the time of the transaction, investor demand and the objective to ensure that value for money for the taxpayer is achieved," the government said in a statement.
Business Minister Michael Fallon, the man leading the sale, had told Reuters in July there was healthy demand from domestic and overseas investors in Royal Mail.
The company, which no longer includes the Post Office services and retail business, has revenue of more than 9 billion pounds and more than doubled profit in the year ended March 31, helped by a greater focus on parcels, which make up almost half its turnover.
The privatization of Royal Mail, which has around 150,000 staff, is designed to raise funds to help finance the modernization of the postal operator's business, but has been fiercely opposed by unions concerned about threats to jobs, pay and the possible impact on services.
It will be the fourth time the group has tried to go public, after three attempts failed in the last 19 years due to opposition from within the governing majority, which feared an electoral backlash from tampering with a revered institution whose red post-boxes are known around the world.
Opposition business spokesman Chuka Umunna called the move "a politically-motivated fire sale".
The flotation plans could take place against a backdrop of strike action. The Communication Workers Union, which represents most of the delivery service's staff, will send out strike ballot papers next week if an agreement cannot be reached with Royal Mail over post-privatization pay.
The CWU rejected Royal Mail's three-year pay offer in July.
In Thursday's statement Royal Mail said it believed union members would vote to strike - with the earliest date for action set to be October 10 - adding it had contingency plans in place.
Business Minister Fallon said the time was right to go to the capital markets despite the threat of strikes.
He said there were always concerns with any privatization among the workforce and from the people who relied on that organization's service, but he said Royal Mail's services would continue.
"The six day a week service that we all rely on and that businesses rely on, that is absolutely protected and it is protected in law and there is going to be no change to that," Fallon told BBC radio.
Royal Mail said conditional to the listing it had agreed new debt facilities worth 1.4 billion pounds with a banking syndicate that would replace all existing loans from the government and lead to a significant reduction in the overall cost of the group's debt.
ETX Capital said in a note to clients the details of the debt facilities would allay any concerns the privatization would be difficult, particularly in light of the strike threat.
"We expect it to be priced very attractively by the government in order to garner the demand to deem this IPO as a success given the importance surrounding it," the brokerage said in a note.
The government said Royal Mail planned to pay a final dividend in July next year of 133 million pounds. Had the company been listed for the full year, it would have paid a total of 200 million pounds.
Goldman Sachs (GS.N) and UBS UBSN.VX are acting as lead advisers for the share sale.