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The National Audit Office pulled no punches when it released its report by its comptroller and Auditor General entitled “The Privatisation of Royal Mail.” (LSE:RMG)
Maintaining a modicum of politeness, Amyas Morse, head of the office, said, “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. The Government retained 30 per cent of the company. It could have retained even more and allowed the taxpayer to participate further in the rapidly increasing share price and thus limit the cost of to the taxpayer of its cautious approach.”
Put more concisely and perhaps a bit more bluntly, “The Department was successful in floating Royal Mail. But its approach was marked by deep caution, the price of which was borne by the taxpayer.”
What a shock that must be to the average, upstanding, hard-working (if employed) taxpayer! Wait until the general public realizes that they have once again taken it in the shorts. I don’t know about you Brits, but when we Yanks get this kind of treatment we are convinced that there is some nefarious bureaucrat, who was probably once a banker, named Ben Dover running the whole shebang.
Seems that, in the rush to privatize, although the parliamentary pronouncements at the time proclaimed a praiseworthy transaction for the prosperity of the populace, it now appears to have been nothing more than a pyrrhic victory at best.
(For the benefit of those who may not recall, Pyrrhus, king of Epirus, defeated the Roman armies at Aesculum in 280 B.C.E., but at such cost to his own troops that he was unable to follow up and attack Rome itself, is said to have remarked, “One more such victory and we are lost.”)
Labour MP and chair of the Business, Innovation and Skills select committee, Adrian Bailey, said, “We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares [and] failed to gauge demand at higher price levels and didn’t give appropriate consideration to maximizing value for money for the taxpayer.”
Fellow MP Ian Murray enjoined, “Ministers pressed ahead with their unnecessary and botched fire sale of Royal Mail, despite widespread opposition and warnings. As a result, taxpayers have been short-changed by hundreds of millions of pounds while the government’s ‘priority’ City investors made a killing at the public’s expense.” Responding to the government announcement that it is launching an investigation into the matter, Murray said, “By launching an inquiry into the Royal Mail fire sale this week, ministers have admitted what everyone else has known for months on the huge failings there have been.”
The National Audit Office report cited the following issues as reasons that the government investigation is mandated”
- The shortcomings of a standard book-building process and legal requirements made it very difficult for the Department to sell above 330 pence per share once the range had been announced.
- The Department decided to sell the full 60 per cent of shares on the advice of the syndicate and its adviser. The Department could have retained 110 million more shares, worth £363 million at the offer price, while still achieving the policy objective of reducing the government’s ownership below 50 per cent. Retaining more shares might have allowed the Department to further benefit from any future increase above
the sale price, but it decided to sell 60 per cent. - Royal Mail’s share price increased substantially after the sale and a number of priority investors have sold their shares at a much higher price. Royal Mail’s share price rose to 455 pence (+38 per cent) on the first day of trading. RMG closed at 474.30 today, up 0.98% from the previous day.
- The strong share price increase of 38 per cent on the first day of trading and the trading range throughout the first five months indicates that Royal Mail’s shares are worth much more than this process was able to extract.
Of its four final recommendations, the one that stands out the most is that the “Government should consider ways to reduce reliance on professional advisers, and ensure that where it does use advisers it seeks to optimize overall value for the taxpayer.” Whether that will actually ever happen when politicians and megalithic institutional investors and traders are involved remains to be seen. If some changes are not made soon the UK could become divided into two new classes: investors and taxpayers. That is not the way the system was intended to work.
