Royal Mail major shareholders to be asked if shares were too cheap

Commons business committee plans to write to large investors as part of bid to find out if state-owned postal service was undervalued

Royal Mail investors who bought large stakes in the postal service following its £3.3bn privatisation last month are to be asked by MPs why they have staked hundreds of millions of pounds on the view that the government sold the firm on the cheap.

The news emerged after the Commons business committee investigating the Royal Mail flotation questioned the business secretary, Vince Cable, and his ministerial colleague Michael Fallon how the offer was valued, prompting an assertion from Cable that there was no need for an independent inquiry into the process.

Committee chairman Adrian Bailey said he will be writing to the The Children's Investment Fund (TCI) and GIC, Singapore's sovereign wealth fund, which have built up their Royal Mail stakes since its listing to more than 6% and 4%, respectively – having decided the shares would rise far above their 330p flotation price.

He said: "Yes, we might well want to [write to major new shareholders to ask why they value Royal Mail so highly]. We are reviewing the transcript [of evidence] to identify areas to follow up."

The committee has been investigating whether the taxpayer has been shortchanged by the Royal Mail flotation, in which 60% of the shares were sold to outside investors last month. The share price has since soared by about 70%, prompting criticisms that the government could have demanded a higher price. The Bow Group, a thinktank led by former prime minister Sir John Major, has called for an independent inquiry into the privatisation.

When asked if he thought an inquiry was required, Cable replied: "Absolutely not. We think this is a good process for the taxpayer."

He added that the valuation was only one criteria in deciding whether or not the taxpayer had received value for money, as the company could have withered – and its services put at risk – without access to private capital to invest in its future.

"Bearing in mind the set of objectives which we set at the very beginning ... the value for money is partly dependent on the offer price, it's partly dependent on the continuing value of the state's [30%] share, and it's partly dependent on what happens to the company. If the company isn't able to invest successfully [in its business], you could be left with a serious casualty. When we take all those things together, I think the conclusion will be, when people have settled down, that this has been a very professional well-managed and successful operation."

Royal Mail floated at 330p a share when the government sold 600m shares last month. Once the shares began trading on the stock exchange, they quickly soared. The shares were up 5% on Wednesday afternoon following the group's first results statement as a public company, changing hands at around 563p.

Also being questioned alongside Cable and Fallon were Mark Russell, the chief executive of Shareholder Executive which holds state stakes in businesses, and William Rucker, the chief executive of the government's main financial adviser, Lazard.

Russell said the government had been taken by surprise by the surge in the share price, telling the committee: "We did not anticipate the share price to move to the extent that it did."

He added, however, it had been anticipated that the shares would rise following privatisation, which was part of the reason why the government had retained a 30% Royal Mail stake. Typically, the City hopes the shares rise by around 10% on the first few days of trading following a flotation.

Bailey also asked the witnesses if it was predictable that Royal Mail shares would surge so strongly, with the offer was 20 times oversubscribed by investors.

Lazard's Rucker claimed not: "A lot of the orders [for shares] that go into the books ... there is a heavy element of gaming. The three biggest orders were $1bn each. That would have represented 20% of the company. Those institutions had no expectations of ever receiving anything like that quantity of the stock."

Article Source : http://www.guardian.co.uk
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Law firm Clifford Chance analyses Royal Mail's property portfolio

Evaluation comes amid criticism that property portfolio may have been undervalued and Royal Mail sold off on the cheap

Clifford Chance, the "Magic Circle" City law firm with links to some of the leading investors in Royal Mail, has been privately analysing the newly floated company's portfolio of 2,000 UK properties.

News of the evaluation comes a week after MPs on the Department for Business, Innovation & Skills select committee probed bankers on the value of the newly privatised company's property portfolio, amid criticisms that it may have been undervalued and that Royal Mail sold off on the cheap. Vince Cable and Michael Fallon, the ministers who led the controversial flotation, are set to appear in front of the committee on Wednesday.

It is not clear which client has engaged the law firm, but Clifford Chance has previously represented organisations including the Children's Investment Fund and GIC, Singapore's sovereign wealth fund, who are two of Royal Mail's largest shareholders.

The Guardian understands that Clifford Chance has received a report containing details of around 800 properties held by the Royal Mail subsidiary Royal Mail Estates which are registered with the Land Registry in England and Wales.

The portfolio includes a string of sorting offices and plots of land – such as the Mount Pleasant and Nine Elms sites in central London which are part of three property redevelopment plans already predicted to make Royal Mail around £300m. Around 95% of the portfolio is freehold property.

As a large proportion of the portfolio consists of sorting offices, investors are unlikely to be able to dispose of them for a quick profit as the business needs the sites to operate. However, analysts have estimated that there could be around £100m of Royal Mail properties that are surplus to requirements, while the fact that the group owns so many freeholds was always likely to attract certain sections of the property industry, at a time when businesses selling their properties for cash and then leasing them back appears to be coming back into fashion.

A spokesman for Royal Mail said the company had "pursued" sale and leaseback in the past, but it was not currently "a key part of our strategy".

However, the UK supermarket group Morrisons announced in September that it would review its £9bn property portfolio with a view to doing such a deal.

The Morrisons announcement came only five years after Sir Ken Morrison, the chairman who led the company for 50 years, said that sale and leaseback was anathema to the grocer.

Aside from the 800 properties registered to Royal Mail Estates, there are further sites in Scotland and Northern Ireland, while the remainder that take the total to 2,000 are largely made up of leasehold sites that Royal Mail has occupied for less than 10 years.

Royal Mail floated last month at an initial value of £3.3bn, but the shares quickly soared prompting criticisms that the taxpayer may have been shortchanged. When the stock exchange closed on Tuesday evening, the company was worth £5.3bn.

Royal Mail workers call off one-day strike after talks progress

Union and management say new agreement will include an improved pay offer and separate pensions agreement

A strike planned by Royal Mail workers in the aftermath of the company's recent privatisation has been called off after unions and management said talks were progressing.

The Communication Workers Union (CWU) had given notice of a one-day strike by its 115,000 members in the postal service next Monday over issues including pay, pensions and the legal protections offered to employees.

However, in a joint statement issued on Wednesday afternoon, Royal Mail and the CWU said they had made progress in talks and committed to finalising an agreement in the next two weeks.

Workers had voted 4-1 in favour of industrial action in a ballot earlier this month, despite the company offering all staff a £300 bonus if they committed not to strike. Royal Mail had made an initial offer of an 8.6% pay rise over three years but an improved offer will now be made.

The new agreement will include legal protections for employees that extend beyond the current three years and a separate pensions agreement. According to the nine-point draft agreement, both parties also commit to "an agenda for growth underpinned by a culture of consensual change, timely decision making and industrial stability supported by alternative dispute resolution processes".

With controversial changes to the 500-year-old service being implemented, there was also a commitment to a "joint company/CWU charter shaping the ongoing values and principles of the Royal Mail Group".

Royal Mail agreed to extend the legal validity of the CWU's strike ballot until 20 November, giving the union the opportunity to still enact a strike if agreement is not finalised. But both parties pledged to "clear diaries to ensure all our efforts are focused on reaching an agreement by 13 November".

While Royal Mail staff will not be walking out, the 4,000 members of the CWU who work in the 372 crown post offices are still due to strike on Monday, in a separate dispute over pay, branch closures and job cuts.

Article Source : http://www.guardian.co.uk
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Royal Mail was worth £10bn, said JP Morgan. It sold for £6bn less

Investment bank gave valuation before flotation, as unions accuse government of 'conspiracy against taxpayer'

News of the valuation from JP Morgan re-ignited the huge row over the privatisation with Billy Hayes, the postal workers union leader, claiming a "conspiracy against the taxpayer" and demanding the sacking of Vince Cable as business secretary.

The government sold shares in Royal Mail for 330p each, valuing the business at £3.3bn on 11 October. But the shares rocketed in value by almost 40% that day alone and closed at 529p, making the company worth more than £5bn.

The official float figure excluded around £800m of debt, which included would give the state-owned business an "enterprise value" of £4.1bn but still almost £6bn lower than the price tag suggested by JP Morgan.

The US bank declined to comment but well-placed sources confirmed the figure of £10bn and made clear that others pitching to sell the Royal Mail on behalf of the government had also priced the mail company as high as £7bn.

The Department of Business said a whole range of different price tags had been put on Royal Mail at different stages of the sell-off process which was conducted in the most thorough way. "The banks' proposals came months before any threat of strike action by the unions, financial market uncertainty in the United States and other factors which the government has already said were taken into consideration in setting a price for the company in September," said a spokesman.

Hayes, the general secretary of the Communication Workers Union, said: "On the opening day of the flotation Vince Cable wrote off the undervaluation as froth. A week later, we were told it was the fault of the CWU. We now have a prima facie case of a conspiracy against the UK taxpayer who were opposed to the sale and have now been robbed of billions. In any other walk of life this would be a sacking offence and we call on Vince Cable to resign. A full inquiry should be launched into the mis-handling of this unnecessary privatisation by Vince Cable. We would also like the matter to be referred to the public accounts committee to scrutinise how badly the taxpayer has been left out of pocket.

Chuka Umunna, the shadow business secretary, said the development only added to fears that taxpayers have been significantly "short-changed by David Cameron's Royal Mail fire sale".

He added: "Vince Cable has said that taxpayer value was 'central' to the government's strategy in selling Royal Mail but given the extensive consultation with institutional investors and banks which took place, both he and the prime minister have serious questions to answer.

"Crucially, they must explain when the Government was made aware that the sale was so massively oversubscribed by major investors and why, having considered a higher price, they rejected that option.

"We have called for a full investigation into this matter so it is welcome that the National Audit Office has announced it will be looking into the deal and publishing its findings in the Spring."But Whitehall sources said it was not surprising that banks pitching for business might overplay the value of Royal Mail in the hope that they would win the work. They said it was like an estate agent coming round to have a look at a house and trying to persuade the owners to hire them by offering the best price available, but without the full knowledge at that point of all the circumstances.

Over 21 investment banks offered their services in May and their appointment was overseen by another City institution, Lazard. The spokesman for the Department of Business added yesterday: "The proposals included indicative valuations of the company based, in many instances, solely on information already in the public domain. Banks made their own assumptions of Royal Mail's future performance. The range was wide with the median around £3.6bn taking into account [an] IPO [initial public offering] discount." Among the banks that did win the work were Goldman Sachs and UBS.

Article Source : http://www.guardian.co.uk

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Royal Mail shares: hedge fund takes biggest private stake

TCI's 5.8% slice of Royal Mail shares fuels criticism of Vince Cable over 'fire sale' as Labour says small investors let down

A hedge fund known for its aggressive investment strategy has become the largest private shareholder in Royal Mail, re-igniting anger overVince Cable's controversial privatisation of the postal service.

The Children's Investment Fund owns a 5.8% stake in the 500-year-old postal service, making it the largest shareholder behind the government, which has a 38% stake. TCI is controlled by publicity-shy Chris Hohn, who pressed for the sale of ABN Amro, which ended in the Dutch bank's disastrous takeover by the Royal Bank of Scotland, and has been dubbed a "locust" in Germany for its investment style.

TCI's stake in Royal Mail came to light under stock market rules obliging investors to report holdings greater than 5%, and was seized on by government critics who argue that the business secretary failed small investors by selling the shares off to "big money" in the City and failing to live up to his promise to sell them to long-term investors.

TCI revealed that it owns 58.1m shares, on a day when the shares rose to 499p, slightly down on last week but still 50% higher than the 330p the shares were sold at.

Hohn, the Surrey-born chief executive of TCI, is also among the UK's most generous philanthropists and first came to prominence in 2005 after he ousted the chief executive of Deutsche Börse, Werner Seifert, ending his bid to take over the London Stock Exchange. Seifert retaliated by branding TCI partners and its US equivalents "locusts".

The bulk of the controversial hedge fund's stake in Royal Mail is likely to have been bought on the stock market rather than directly from the government, but it may still raise hackles among trade unionists who recently voted for a nationwide 24-hour strike next month. It has also reignited criticism from Labour that Royal Mail was sold on the cheap.

Ian Murray, the shadow minister for trade and investment, argued that small investors had been failed by the government's "fire sale".

"We have seen small investors losing out while the vast majority of shares sold have gone to big-money investors in the City," he said. "Vince Cable claimed that the sale would prioritise long-term investors but serious questions will be asked on whether this is the case, not least given the huge volume of trades in Royal Mail shares which we have seen in the first days of trading, running into hundreds of millions."

He added: "This is on top of real concerns that taxpayers have been left short-changed to the tune of hundreds of millions of pounds at a time when families across Britain are facing a cost of living crisis."

Cable told a committee of MPs earlier this month the government was in "a position to ensure that we do get the right kind of investor community". He said: "We are talking about pension funds and insurance companies that hold the savings of millions of people, and we have been very clear that that is the kind of relationship we want to have, that is long-termism."

A spokesman at the business department referred to these comments and said the government was not disappointed with a hedge fund owner, adding: "It is not a matter for us, it is a matter for the company."

TCI and Royal Mail declined to comment.

Hedge funds have been among the city institutions and retail investors scrambling for a slice of Royal Mail, in part because they believe modernisation of the postal service could happen faster than planned.

David Buik, a market commentator at Panmure Gordon, described Hohn as an extremely shrewd businessman. "My guess is that he thinks it is a probably a very good company. I suspect he thinks it is undervalued – I suspect he has bought his stake in it for that reason." Neither will it have escaped his attention that Royal Mail is a plum takeover target, Buik added.

"If things don't work out on an independent basis, it would look very cosy in the portfolio of UPS or Deutsche Post."

TCI has grown into one of the world's largest hedge funds since its creation in 2003, and currently has $11bn in assets under management.

In recent months it has been buying into companies with corporate governance concerns, such as Japan Tobacco and Rupert Murdoch's News Corp in the wake of the phone hacking scandal. Since News Corp was split, TCI now owns a stake in Twentieth Century Fox.

Article Source : http://www.guardian.co.uk

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The great Royal Mail sale: 700,000 want shares

Government reveals that sell-off is seven times oversubscribed, fuelling criticism that price is too low

More than 700,000 people have applied for shares in Royal Mail, the government has revealed, reviving privatisation fever last seen in the 1980s and intensifying fears that the postal service is being sold too cheaply.

Vince Cable, the business secretary, said the public had placed orders for more than seven times the number of shares available to them. Small investors could have bought the entire company if 70% of the shares on sale had not been reserved for City investors and pension funds.

"We haven't yet got the final figures but my very rough estimate is that we've had about 700,000 applications and it's about seven times oversubscribed," Cable told MPs. The huge demand for the shares means that applications are bound to be scaled back.

Those applying for the minimum £750 of shares may be the only ones to get what they have applied for while those who applied for shares worth thousands are expected to get just a fraction of what they had wanted.

The frenzy for the shares – fuelled by expectations of an immediate paper profit of 20% to 30% when trading begins on Friday – is more intense than demand for British Gas or British Telecom was at the height of the privatisation drive in the 1980s and 1990s.

The public put in orders for just four times the number of British Gas shares available in its 1986 privatisation despite its multimillion-pound "Tell Sid" advertising campaign. The privatisation of BT in 1984 was 3.2 times oversubscribed. More than 4 million people applied for British Gas shares, while 2 million applied for BT shares.

Cable said he was confident the shares had been "priced in the right place" despite claims from City analysts that the government undervalued the company by more than £1bn.

The business secretary said the claim by stockbroker Panmure Gordon that Royal Mail is worth £4.5bn compared with the government's maximum valuation of £3.3bn was "way outside the estimates of most of the equity analysts".

The shares will almost certainly be priced at 330p and will make their debut on the stock market on Friday. Stockbrokers predict the shares could rise to between 385p and 405p on the first day. A rise to 400p would mean investors would make an immediate 21% paper return.

If the shares rise by 20% on Friday, £750 of shares will be worth £900 by the end of the afternoon. It also means the government will have lost out on collecting an extra £400m for taxpayers on top of the £2bn it will collect from selling the 60% stake of Royal Mail. A further 10% is being given to the company's 150,000 employees – each will collect shares worth about £2,200.

Cable said people should ignore the immediate "froth" of the expected share price jump on Friday and concentrate on Royal Mail's secure long-term future on the public market.

Ian Murray, the shadow minister for postal affairs, said: "I don't think taxpayers losing millions is froth."

Selling Royal Mail, which traces its roots back to a forerunner founded by Henry VIII in 1513, has been on the political agenda for decades. Margaret Thatcher, the pioneer of privatisation in the 1980s drew the line at Royal Mail, saying famously that she was "not prepared to have the Queen's head privatised". But both the Tories' Lord Heseltine and Labour's Lord Mandelson tried, and failed, to sell it.

The sale now comes despite massive opposition from staff, 96% of whom are adamantly against the sell-off despite picking up free shares. Royal Mail's army of 150,000 workers are currently balloting on holding days of paralysing strike action in the runup to Christmas.

Because the shares are so oversubscribed orders from the public as well as from banks are likely to be significantly scaled back. The government is likely to honour all public orders for the minimum £750 of shares, but larger orders will be severely cut back. Michael Fallon, the business minister, has said he is committed to making sure small investors "get their fair share" of Royal Mail shares.

The government has only committed to granting 30% of the £2bn of shares available to the public but the government refused to say whether a greater proportion of the shares on offer will be transferred to the public rather than institutional investors.

The 30% earmarked for the public would work out at only £857 each if split evenly between the 700,000 applicants. A government spokesman said the exact details of how the shares will be distributed will not be announced until Friday morning.

On top of the massive public demand, hedge funds and other institutional investors are understood to have placed orders for more than £30bn of Royal Mail shares.

Cable said institutional demand was so strong that the government would be able to block shares from going to "spivs and speculators" in favour of "responsible long-term institutional investors".

"We are in a position to ensure we do get the right type of investor community – pension funds insurance companies that hold the savings of millions of people," he said. "That's the type of community we want."

Cable said demand from institutional investors at the maximum 330p is so strong that hedge funds and other speculators "in it to make a killing" are unlikely to end up with any shares in the flotation. "The aim is to place the shares with long-term investors, we are absolutely confident that will happen."
Article Source : http://www.guardian.co.uk
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Government kicks off Lloyds sale

Announcement after closure of stock exchange marks significant step in returning bailed out bank to private sector

The government on Monday began to sell off its stake in Lloyds Banking Group in a move that marks a significant step in returning the bailed out bank to the private sector five years after the financial crisis began.

The announcement was made just after the stock market closed when the banks advising the government started to approach major investors about buying chunks of the 4.2bn shares – currently valued at £3.3bn – being sold.

About 6% of shares in the group are being sold, which would reduce the government's stake from 38.7% to 32.7%.

The timing, in the midst of the Liberal Democrat party conference, means the Lloyds shares will be sold ahead of the £3bn privatisation of Royal Mail, although the size of the stake being sold is smaller than some City analysts had expected.

After conducting a daily analysis of the Lloyds' share price throughout the summer, UK Financial Investments (UKFI), the body set up to look after the stakes in the bailed out banks, advised George Osborne earlier on Monday afternoon that it is now time to kickstart the privatisation.

Osborne said on Monday night: "Five years ago the previous government used taxpayers' money to bail out the banks and I've been absolutely determined to get that money back for taxpayers so we can pay down debt. Today we have started to do that and it is another step in the long journey to repair what went so badly wrong in the British economy."

The exact price at which the shares are sold was expected to be announced on Tuesday, as the fifth anniversary approaches of the rescue of HBOS by Lloyds TSB to create the enlarged Lloyds Banking Group. The bank was eventually bailed out with £20bn of taxpayer money.

The government is expected to be able to claim it has made a profit – albeit a small one – on the sale which has been the subject of much speculation since the chancellor's Mansion House speech in June when he signalled preparations for the privatisation of Lloyds but played down the prospect of a quick sale of bailed out Royal Bank of Scotland.

In that speech, Osborne signalled that after a sale of Lloyds shares to major institutions, retail investors would be given the chance to buy shares. This option has not been ruled out, and the Policy Exchange thinktank is recommending a sale of the remaining stake through a mass distribution to taxpayers.

Since the speech, major investors have been sounded out by UKFI and its advisers about buying the shares and have already signalled their willingness to buy the stock, which has rallied sharply – in part helped by the government's housing schemes, which have bolstered the mortgage market.

"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met," a Treasury spokesman said.

But Chris Leslie, shadow financial secretary to the Treasury, said Osborne was continuing to duck "serious reform of our banking sector".

"It's vital that taxpayers get their money back and this must be the prime consideration in the sale of the government's stakes in the banks. And as Labour has consistently said any profits from the sale should be used to repay the national debt," Leslie said.

The shares closed on Monday night at 77.3p – above the 73.6p average price at which the government spent £20bn buying the stake. The shares are likely to be sold at a slight discount to that price but still higher than the average price at which they were bought and well above the 61p stated in the national accounts.

The 61p level represents the average price at which the shares were trading on the days the government bought the shares, rather than the actual price paid.

The government had already indicated it regards 61p as its benchmark for the sale and this is the price to which it has linked the £1.5m bonus of the chief executive of Lloyds, António Horta-Osório. He can receive his bonus if a third of its stake is sold above 61p.

Horta-Osório said the sale "reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy".

UKFI – which also announced that James Leigh-Pemberton, son of former Bank of England governor Robin Leigh-Pemberton, is to be its new boss – said it would not place any more shares for 90 days.

Paras Anand, head of European equities at Fidelity Worldwide Investment, said the placing was "a clear sign of confidence that the bank is well on the road to recovery".

RBS sale must wait

The launch of the Lloyds shares sale puts its prospects in stark contrast to those of Royal Bank of Scotland, the other financial institution rescued with taxpayer money.

While Lloyds embarks on its path back into private hands, a sale of RBS – which is 81%-owned by the taxpayer – is clearly further away. Its share price is still well below the level where taxpayers stepped in and George Osborne has commissioned a review by investment bankers at Rothschild into whether it should be broken up into a good bank and a bad bank.

The rescued bank's boss Stephen Hester resigned in June in a move intended to speed up a sell-off of the taxpayer stake, bought for £45bn in 2008 and 2009 to stop the Edinburgh-based bank collapsing.

RBS managementrs have said it could be ready for sale from the middle of 2014 – or even earlier. But the Rothschild review process delays any potential privatisation and the chancellor has said selling the government's stake is "some way off".

The results of the Rothschild review are expected later this month and in the meantime support for a split has been growing.Shares in RBS closed at 366.5p last night, a level that represents a £12bn loss on the money ploughed in by the taxpayer, at an average price of around 500p.

Article Source : http://www.guardian.co.uk

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Royal Mail privatisation will not affect postal delivery – Vince Cable

Business secretary says postal service sell-off will not threaten universal service obligation to deliver to 29m UK homes

The Royal Mail's duty to deliver to all 29m homes in the UK will survive privatisation, the government has said, as it unveiled plans for the most significant state sell-off since the railways in the 1990s .

The pledge came as business secretary Vince Cable announced long-awaited plans to float the Royal Mail on the London Stock Exchange this year, and confirmed that postmen and women would be entitled to free shares in the business.

Critics argued that the privatisation of an institution first opened to the public 378 years ago would mean post office closures, the erosion of six-day delivery in rural areas and worse pay and conditions for postal workers. Speaking in the House of Commons, Cable said privatisation was "an irreversible course" that would secure the future of Royal Mail in the face of competition.

"The government's decision on the sale is practical, it is logical, it is a commercial decision designed to put Royal Mail's future on a long-term sustainable business. It is consistent with developments elsewhere in Europe where privatised operators in Austria, Germany and Belgium produce profit margins far higher than the Royal Mail but have continued to provide high-quality and expanding services," he said. "Now the time has come for government to step back from Royal Mail, and allow its management to focus wholeheartedly on growing the business."

The Communication Workers Union (CWU), which represents two-thirds of the Royal Mail's 150,000 workforce, vowed to fight the sell-off and accused the government of ignoring the views of the public.

The Labour party, which attempted to part-privatise the service in 2009, accused ministers of pushing ahead with the sale to dig the chancellor out of a financial hole caused by a rise in government borrowing. Market analysts expect Royal Mail will be valued at £3bn when it floats later this year. The public will be able to apply for shares, although Royal Mail workers will be allowed first in the queue if they want extra shares on top of the 10% share guaranteed to them.

Cable said the "overarching objective" of privatisation was to secure the universal service obligation that requires mail deliveries to any UK home six days a week, which has been threatened by a slump in profits in the wake of a 25% decline in letters over the last decade.

But Dave Ward, the CWU's deputy general secretary, said the business secretary was "off the pace" on the economic reality of the six-day universal service, which he predicted would not survive in rural areas and remote regions under privatisation.

Warning that privately-owned companies will seek a relaxation of the obligation if they offer their own doorstep delivery services around the UK, he said: "We are talking about an economic reality. These [delivery] companies will lobby against the six-day service. It simply will not make the money to secure their investment."

The national network of 11,780 Post Offices, a separate company from Royal Mail, will remain in public hands, a promise that failed to reassure the National Federation of SubPostmasters', who accused the government of taking "a reckless gamble" with the network that would lead to post office closures.

"If privatisation goes ahead, we have very real fears that the Royal Mail will rip up its the current agreement with Post Office Ltd [to provide Royal Mail products and services] in an aggressive bid to maximise profits for its shareholders," said NFSP general secretary George Thomson.

Chuka Umunna, shadow business minister, said the recent doubling in profits at Royal Mail to £403m also called into question the assumptions behind the "fire sale". "They now want to privatise the profits at the time it is making money. How can this policy make sense?"

Cable pledged that private ownership would not trigger any change in post office workers' terms and conditions, while the Royal Mail promised "a legally-binding and enforceable contract with the CWU" to enshrine these rights.

Dave Ward at the CWU said Cable's guarantees "are not worth the paper they are written on", while existing agreements with were "completely inadequate". Strike action was inevitable, he said.But the government hopes that giving away shares to employees – the largest worker share offer in nearly 30 years – will soften opposition to the sale. Under the scheme, eligible employees would be entitled to free shares, but would be unable to sell them for at least three years.

Moya Greene, Royal Mail's chief executive, who has been courting potential investors in the UK, North America and continental Europe, said the sale would give employees "a meaningful stake in the company" and the public "the opportunity to invest in a great British institution".

British Petroleum, October 1979

Now a publicly traded company with a large number of US shareholders and institutional investors including BlackRock

British Aerospace, February 1981

Now BAE Systems, the company is traded on the FTSE 100 and major institutional investors include Invesco and AXA

British Telecom, December 1984

Now a publicly traded company with institutional investors including Invesco, BlackRock and Legal & General, and more than a million small shareholders

British Gas, December 1986

Following a demerger in 1997, British Gas became part of the newly formed Centrica, which is publicly listed and whose shareholders include Invesco and Legal & General

British Airways, February 1987

A listed business, merged with Spain's Iberia and owned by International Airlines Group

BAA, July 1987

Now called Heathrow Airports Limited and owned by a consortium including Spain's Ferrovial and China's sovereign wealth fund

British Steel, December 1988

After it merged with a Dutch steel producer and became Corus, it was bought by India's Tata Steel

Water (10 regional companies), December 1989

Thames Water is part of Kemble, which is owned by a number of institutional investors and pension funds, including China's sovereign wealth fund and funds managed by Australian group Macquarie. Southern Water is owned by Greensands Investments, a consortium of pension and infrastructure funds

Vince Cable issues his Commons statement on the Royal Mail privatisation plans. He said this was 'an irreversible course' that would secure the future of Royal Mail in the face of rising competition

British Coal, 1994

Its administrative functions were transferred to the government's Coal Authority, while its mines were transferred to UK Coal, which went into administration this week.

British Energy, 1996

Part of French state-owned group EDF

Stage in process: a 10-year contract has been awarded to US-based company Bristow, which will take over duties from the RAF and Royal Navy from April 2015

Student loan book/Student Loans Company

Stage in process: Vince Cable has already announced the sale of a £900m book of loans. It is possible that the rest of the £45.9bn loan book could follow. Bidders could include banks, funds and financial institutions

Urenco

Stage in process: the government put its one-third stake up for sale in April, after securing agreement from its Dutch and German partners. Bidders could include consortia of financial buyers – most likely infrastructure investors and sovereign wealth funds – and trade buyers

Plasma Resources UK

Stage in process: the government announced in January it was examining a partial or whole sale of its blood plasma business. Possible bidders include bioscience and healthcare companies, as well as private equity firms

Lloyds Banking Group and Royal Bank of Scotland

The bailed-out banks will be fully privatised, but the government has not indicated when. It is likely to sell its shares to investors on a phased basis, starting with Lloyds. The government would like to see them fully returned to the private sector by the next election in 2015

Article Source : http://www.guardian.co.uk

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Royal Mail profits surge ahead of planned sell-off

Annual profits rise to £324m as the government prepares to sell the 497-year-old postal service

Royal Mail has reported a 60% increase in pre-tax annual profits to £324m, as the government prepares to sell off the 497-year-old postal service in the most ambitious privatisation since British Gas in 1986.

The company, which ministers hope to float on the London Stock Exchange within a year, said its pre-tax profits in the year to the end of March increased to £324m from £201m a year earlier. Sales, which were boosted by a 30% rise in the price of first class stamps to 60p, increased by more than £500m to £9.3bn.

Moya Greene, the chief executive, said: "Our strategy is delivering. The transformation of Royal Mail is well under way."

Speaking publicly about the privatisation plans for the first time, she said a sale of part of the business would allow Royal Mail to "combine the best of the public and private sectors".

She promised that the sale would not affect Royal Mail's universal service obligation to deliver to every address in the UK six days a week for the same price. "We are honoured to provide the universal service to more than 29m addresses across the UK," she said. "[It] can only be changed by a vote in both houses of parliament."

Greene pleaded with her staff, who have rebelled against the sell-off plans, to "continue to drive our business forward as we seek to realise our collective objectives".

"These are times of significant change and we are asking a lot of our people," she acknowledged.

The Communication Workers Union (CWU), which represents postal workers, has vowed to fight the sale, which it says will lead to a "worse deal for customers, staff and thousands of small businesses dependent on the Royal Mail". Dave Ward, CWU deputy general secretary, said the positive results were "more compelling evidence of why Royal Mail should be kept in the public sector".

Royal Mail privatisation is pushing ahead as profits are up.

 "Privatisation isn't necessary and it would destabilise the workforce and the good progress being made. The support of the workforce is crucial to the success of the company."

Michael Fallon, the business minister, has warned the union that the world's oldest postal service could be sold to sovereign wealth funds or other foreign buyers if the CWU continues to fight its flotation. He said the government was "committed" to the sale and Tuesday's results were "another encouraging step" towards it.

The business secretary, Vince Cable, said there was "no alternative" to privatisation, and Royal Mail still faces a "fundamental threat" from email, texts and social media.

Greene, a Canadian who joined Royal Mail three years ago from Canada Post, said she has held discussions with a number of "high quality investors" in Canada and the US and said it would be "foolhardy" not consider the sale of the company to foreign buyers. "The IPO [initial public offering] market in the past few years has been quite unpredictable," she said. "It would be foolhardy not to consider other options."

She said she was disappointed with the union's "philosophical" stance against privatisation. "They believe government ownership should continue even though it fell into a very deep hole," she said.

Greene said that before Royal Mail embarked on its transformation plan, the company was "20 years behind" postal services in other countries.

She indicated that Royal Mail workers will face further rounds of redundancies as the company "has to be sized appropriately for the [declining] traffic we have to process". She declined to state how many more jobs are likely to be lost, but said more than 50,000 have been cut over the past decade.

Staff are due to collect 10% of the shares in the company, which could be worth £1,500 for each employee, when it is privatised.

However, the union said the government could not "buy off" postal workers with the vague offer of shares in the privatised company. "That's not going to cut the mustard," said Billy Hayes, general secretary of the CWU. "Our members don't want £1,500 if it is going to result in depressed terms and conditions and another five streets on a delivery."

Greene said profits would have been as high as £440m accounting for "transformation costs" of redundancy payments and other costs in reshaping the business, which is switching its focus from letters to parcels.

"Just over three years ago, our core UK business had significant cash outflows [ie was making losses]," she said. "Now, despite the challenging UK economic conditions, UKPIL [UK Parcels, International and Letters] contributes the majority of group operating profits."

She said the boom in online shopping had boosted the company's parcel business, to account for almost half of revenues. The number of parcels delivered last year increased by 70m to 1.4bn.

However, she said the letters business was suffering a "structural decline". On average 58m letters are sent every day, compared with 63m in 2011-12.

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Article source : http://www.guardian.co.uk