Seldom in financial history has a share offer been so scandalously misjudged as that of the Royal Mail and so it seems that George Osbourne, Vince Cable and the coalition has got off very lightly in deed. The Royal Mail was owned by you the readers, as tax payers, yet you lost out.
The Royal Mail is an institution and it has been at the centre of British national life since it was founded by Henry VIII in 1516. It proudly carries the word ‘Royal’ in its name and has the unique distinction of offering a service with the imprimatur of the Queen’s head on its main product, the postage stamp.
Bringing such an integral part of the nation’s economic and national security to the public markets should have had ‘Handle With Care’ written all over it. However this was not so. Two thirds of the British Public opposed the sell off, only 20% supported.
At the time of the sell-off in September 2013, shares were offered at 330p. As predicted by most City analysts, the price soared and it kept on climbing until it reached a dizzying height of 578p.
The result is that while shareholders are £2 billion richer, the Treasury could have used that extra money to bolster and support Britain’s deeply-damaged public finances if the offer price had been put at a higher — more realistic — level. Meaning the countries finances are worse off and it is the poorest that is and will suffer the brunt of David Cameron's Royal Mail sell off. So whilst shareholders are £2 billion richer. It could be said that poorer householders have been hurt with a bedroom tax continued public cuts, closures in sure start centres a reduction in working tax credits and so on. Whilst Food-banks have been used by 2 million people in the last two years. Suicide rates have increased due to failings in DWP. Some of the 2 billion could have been spent on ensuring people suffering did not have to bear the brunt of the coalitions policies.
David Cameron and Vince Cable have continued to be bullish ever since the sell off, defensive, dismissive and arrogant at times, claiming the sell-off had been a success. The message was: what’s a couple of billion forgone in the great scheme of things?
They cannot get away with that response not while they make such play of their zealous pursuit of money elsewhere, we watch week in week out Cameron at the dispatch box blame Labour for its previous handling of finances, yet they previous government did not sell a publicly owned corporation for less than 2 billion than it was worth. The ruthless imposition of the bedroom tax, for instance, is causing great hardship to over half a million of Britain’s poorest households, but is justified on the basis that it’s saving the Exchequer £1 million pounds a day. The public have not bought the idea, implicit here, that some billions are more equal than others. Nor should they accept that ignorance and misjudgment on this scale is just one of those unfortunate things. A coalition that markets itself as responsible, rigorous and self-righteous has a lot more rethinking, explaining
and apologising to do. And yet they have sustained from any apology, ducking and diving in every televised interview regarding Royal Mail.
Just like opposing the new social health care act, the bedroom tax, foodbanks and homelessness Labour have been the only party to speak out about the Royal Mail scandal they profusely warned that the shares were being sold too low prior to the day of it going to the markets. For a coalition govt to base so many of its arguments against Labour they need to question their own handling of the publics utilities.
It is very clearly here that stockholders and the coalition government with their vested interests thought there was easy money to be made. A week before the sale the stockbrokers Panmure Gordon warned that the official valuation was at least a billion too low and predicted that shares would bounce by 30 per cent on day one. Labour’s Chuka Umunna backed that call, saying that voters would not forgive the Government if it sold this institution on the cheap. Umunna was also worried by the inclusion of three prime London sites in the sale — at Nine Elms, Mount Pleasant and Paddington — which he thought were badly undervalued. He was right on both accounts.
All of the prior anxieties were scornfully dismissed and the Government pressed ahead. The launch was oversubscribed 24 times. The shares rocketed 38 per cent in the first day’s trading, making £750 million for the lucky few at the top. Cable dismissed the rapid rises as froth, but over the next weeks they just kept climbing. The same banks who had told the Government to keep the price low were now advising their own clients to buy, buy, buy. Cable and Osbourne's serious, long-term institutional investors turned out to have very short time-frames indeed, selling off half their shares within 12 weeks and making a fortune. Now the company is valued at £7.1 billion, which makes it worth £3.3 billion more than we sold it for. The Royal Mail was taken from your hands the general public and the current government has got away with it. Cable and Osbourne allowed institutional investors to bank millions of pounds of profits from the rise in the share price following the debut on the markets. The national audit office found that 16 priority investors whom the government met spoke which had agreed to a gentlemen's agreement to hold their investments for long term, however they sold their shares with incredible profits with weeks.
The NAO report also criticised the government’s ‘reliance’ on professional advisers, in this instance Lazard’s investment bank which alone pocketed £1.5million from the Royal Mail sale.
Law Firm Freshfields also received £1.8million in fees, while UBS, Deloitte, Goldman Sachs, Barclays and Merrill Lynch were all involved in the sale. The total cost to the taxpayer in adviser fees amounted to £12.7million.
So the sell off happened, its now upto the electorate to decide wether this mistake has cost Cameron or Clegg their vote in the general election come May. Our prediction is that yes it most probably will.