By Neil Maidment
LONDON, April 1 Britain sold off Royal Mail
too cheaply, the spending watchdog said on Tuesday,
prompting the main opposition Labour party to accuse Prime
Minister David Cameron's government of failing to look after the
interests of taxpayers.
Britain's decision to sell a 60 percent stake in the
500-year-old state postal operator last October for 330 pence a
share has been heavily criticised by Labour and trade unions
after the stock soared by as much as 87 percent.
Labour has seized upon the flotation, and the quick profits
made by big banks and City investors, to reinforce one of its
central arguments ahead of next year's general election - that
Cameron's government is out of touch with ordinary voters.
The sell-off, which followed three failed attempts to
privatise Royal Mail in 20 years, came in the face of possible
strike action at Royal Mail that the government had said could
deter investors and contributed to its cautious approach on
"It was very clear to us that people would not pay, the big
institutions would not pay over the top of the price range,"
Business Minister Michael Fallon told the BBC on Tuesday.
"We were certainly cautious because we wanted to reduce the
risk to the taxpayers of this launch being a flop."
In its report, the National Audit Office (NAO) said the
approach had led to British taxpayers losing out on at least 750
million pounds ($1.25 billion) in the sale.
"The Department was very keen to achieve its objective of
selling Royal Mail, and was successful in getting the company
listed on the FTSE 100. Its approach, however, was marked by
deep caution, the price of which was borne by the taxpayer," NAO
head Amyas Morse said.
Britain sold its 60 percent stake for 1.98 billion pounds.
However, Royal Mail shares closed at 455p on the first day of
trading, 38 percent above their offer price - meaning the
government could have netted the additional 750 million pounds.
Labour's business spokesman Chuka Umunna described the NAO
report as damning. "When Royal Mail was privatised, (Business
Secretary) Vince Cable described the huge rise in its share
price as 'froth', but since then it has continued to rise.
"He and David Cameron have serious questions to answer on
the hundreds of millions of pounds they have lost British
taxpayers and cannot duck responsibility for what has happened."
With 10 percent of Royal Mail owned by its staff, many of
whom fiercely opposed the sell-off, Britain now holds a 30
percent stake worth about 1.7 billion pounds.
The government and its advising banks have already gone
before parliamentary inquiries to justify Royal Mail's price tag
in light of its subsequent strong share price performance and
news that several banks had made pre-sale pitches that valued
Royal Mail's equity at as much as 8.5 billion pounds - well
above its 3.3 billion valuation when it floated.
The government dismissed those valuations due to the lack of
detailed information available to the pitching banks at the time
and has insisted that the offer price range could not have been
raised for fear of losing a significant number of targeted
The NAO acknowledged the risks of hiking the range but
pointed out that some investors subsequently increased their
shareholding at much higher prices, while the majority of
priority investors had sold almost half of the shares allocated
to them within a few weeks of the float.
"The Department conceded price tension for certainty that
the transaction would be completed," the report said.
Standard Life Investments said on Tuesday it had cut its
stake in Royal Mail from close to 12 million shares held after
it was privatised to around 118.480 shares in March.
The NAO also said the government should not have followed
the advice of its financial advisers to sell the full 60 percent
of shares available for sale.
It could have retained 110 million more shares worth 363
million pounds ($604 million) at the offer price, while still
achieving its objective of reducing its ownership to below 50
percent, allowing it to sell another tranche for more later on.
The watchdog questioned the incentive given to the
government's independent corporate finance adviser Lazard
, which was to secure a sale and was not dependent on the
In a response, Business Secretary Cable said a sale at any
cost had never been the aim.
"The report concludes there was a real risk of a failed sale
attached to pushing the price too high. And a failed sale would
have been the worst outcome for taxpayers and jeopardised the
operation of Royal Mail going forward," he said.
Royal Mail has long argued privatisation would allow it
access to the capital it needs to modernise its business and
better perform in a market rapidly shifting away from letters to
parcels. Last week, it announced plans to cut a net 1,300 jobs
as part of its ongoing drive to reduce costs.
(Additional reporting by Belinda Goldsmith and Chris Vellacott;
Editing by Jane Merriman and Pravin Char)