UK's Royal Mail valued higher than sale price: FT report

Sun Oct 20, 2013 7:26am EDT
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LONDON (Reuters) - Britain's Royal Mail was valued by some investment banks 50 percent higher than last week's public sale price, a newspaper reported, adding to a debate over whether the postal service was sold off too cheaply.

In a report on Saturday, the Financial Times said Royal Mail (RMG.L: Quote) was valued by banks not involved in the sale at up 5 billion pounds($8.09 billion) in June. The newspaper said at least two investment banks pitched a maximum price of about 500p, quoting banking sources.

The government priced the sale of a 62 percent stake in Royal Mail at 330 pence per share, but the shares have risen more than 50 percent to 500 pence since the company's market debut.

On Friday, Business Secretary Vince Cable rebuffed accusations that the government underpriced the privatization and said the threat of industrial action by Royal Mail's staff had influenced the price-setting process.

Bankers often compare the pitching process for mandates to advise on deals such as share sales to choosing an estate agent to sell a house. There is a temptation to over promise on the potential price.

"Banks sometimes originate in poetry and execute in prose," said one banking source.

One source close to the deal said by the time of the float markets had improved since Royal Mail and its advisers first discussed potential valuations with investors earlier in the year, but investors were not keen to move higher on the price.

The industrial relations dispute hanging over the company also weighed heavily on the float process, several people familiar with the matter said, and at times they wondered if the deal would even be able to go ahead.

Ballot results on Wednesday showed that Royal Mail workers would strike on November 4 unless a new pay deal was reached.   Continued...

Raindrops are seen on a Royal Mail post box in central London October 16, 2013. REUTERS/Stefan Wermuth