By Dow Jones Business News, October 11, 2013, 05:07:00 AM EDT
By Alex MacDonald
LONDON--Shares in U.K. postal service Royal Mail PLC (RMG.LN) soared on their first day of trading, rising nearly 40%
above the government's original offer price.
Royal Mail shares rose to an intraday high of 459 pence a share compared with an original offer price of 330 pence a
share, which was already at the top end of the government's price range. The shares later pared back some of their
gains, but were still significantly higher than the offer price.
The strong start to trading will likely fuel criticism of the share sale from the opposition Labour Party, which says
the company has been undervalued, shortchanging taxpayers and enriching short-term investors.
The initial public offering of a 52% stake in the postal-services group is part of the U.K. coalition government's
plan to sell off state assets to help cut the country's budget deficit and represents one of the biggest and most
controversial privatizations the country has seen for decades.
Institutional investors snapped up two-thirds of the offer, with the remainder going to retail investors, the
Department for Business Innovation & Skills said Thursday. The selloff will also create the largest employee share
scheme of any British privatization for almost 30 years, with about 150,000 Royal Mail employees eligible to receive
free shares. In total, employees could hold a combined 10% stake in the company.
The government previously indicated that the shares would be priced between 260 pence and 330 pence a share, valuing
Royal Mail at 2.6 billion pounds ($4.14 billion) to GBP3.3 billion. The government said on Thursday that it will raise
GBP1.72 billion from the offering if an overallotment of shares option isn't exercised, or GBP1.98 billion if it is
Conditional trading, which allows institutional investors to trade shares while the regulatory listing process is
being completed, started Friday, although transactions won't be completed until the first official, unconditional day of
trading on Tuesday.
In recent days some investment analysts have joined the Labour Party in suggesting the government may have undervalued
Royal Mail, with stockbroker Panmure Gordon & Co. valuing the company at between GBP3.7 billion and GBP4.5 billion.
U.K. Business Secretary Vince Cable defended the listing price on Wednesday in an appearance before a parliamentary
committee, saying the government and its advisers had gone through an exhaustive process to make sure the sale was
correctly priced, despite the IPO being seven times oversubscribed. Mr. Cable also appeared on U.K. television Friday
morning to defend the share sale.
Royal Mail's history dates back to 1516, when King Henry VIII ordered the creation of the first national post service.
In recent years, however, the company has battled the rise of the Internet and email, leading to losses in five of the
last 12 years and the elimination of more than 50,000 jobs. It now handles about 58 million letters and parcels a day,
down from 84 million five years ago.
The privatization of Britain's postal service follows similar moves by some European neighbors. Austria, Germany and
the Netherlands have all privatized their postal services in part or fully. In June, Belgium's postal service, Bpost,
raised 2.9 billion euros ($3.9 billion) in an IPO.
By contrast, the U.S. Postal Service is still owned by the government.
-Rory Gallivan and Ainsley Thomson contributed to this article.
Write to Alex MacDonald at email@example.com
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