Analysts suggest the flotation could value to Royal Mail at anywhere between £2bn and £3bn, depending on market conditions, investor demand and the objective to ensure value for the taxpayer is achieved.
The company posted revenue of £9bn and more than doubled profit in the year to 31 March, helped largely by placing a greater focus – and price – on the delivery of parcels. The parcel business is likely to be given even greater prominence following the sale.
The sale has been designed to raise funds to finance the modernisation of the postal operator to offset the decline in income from letters, which could open up more direct marketing services for businesses.
The proposed move has been met with opposition by unions, concerned about possible job cuts, pay reduction and impact on services. The Communication Workers Union is set to ballot its members for strike action. Meanwhile, Shadow Business Secretary Chuka Umunna has called the move a “politically-motivated fire sale”.
Business Secretary Vince Cable said: “HM Government is taking action to secure a healthy future for the company. These measures will ensure the long term sustainability of the six days a week, one-price-goes-anywhere universal postal service.”
The Direct Marketing Association’s executive director Chris Combemale says the industry body “cautiously welcomes” the government’s Royal Mail privatisation plans.
He adds: ”Privatising Royal Mail should lead to increased competition and long-term investment in infrastructure, which should lead to lower costs for online retailers using the service to deliver goods to consumers. Businesses that use direct and transactional mail to communicate with their customers should also benefit from improved services and competitive prices.”
Free shares – equivalent to 10 per cent of the total – will be given to 150,000 UK-based Royal Mail employees, with the rest being offered to institutional investors and members of the public once the flotation goes ahead.
The sell-off will not include the Post Office, which will remain tax-payer owned.