4th Jun 2015 13:36
LONDON (Alliance News) - UK Chancellor George Osborne Thursday said the government will sell its remaining stake in Royal Mail PLC as he outlined plans for Whitehall departments to save GBP3 billion in the current financial year.
The Department for Business, Innovation and Skills said the government holds a 30% stake in the FTSE 100-listed company, currently valued at around GBP1.5 billion.
Shares in Royal Mail surged higher following its float in October 2013, prompting a long-running row between the previous coalition government and critics over whether the shares had been priced too cheaply and resulted in taxpayers missing out on an extra windfall. Shares in the company were floated at 330 pence and were trading at 508.5 pence on Thursday afternoon, a 3.3% fall on the day that was prompted by the government's announcement.
"The transaction will be designed to deliver best value for money to the taxpayer, with further detail on the form of the sale to be announced in due course," the Department for Business said in a statement.
The Department for Business is now led by Business Secretary Sajid Javid, who was handed the role after the Conservatives won an outright majority in the General Election. Vince Cable, a Liberal Democrat, had been the business secretary and was in charge of the department when the first Royal Mail share sale was launched.
He was heavily criticised for the share sale, as was Lazard, the investment bank who ran the initial offering. Lazard was attacked by MPs after it was found that its investment arm, Lazard Asset Management, had made a GBP8 million profit on the float, having sold the shares it was allocated at 330 pence for 470 pence shortly after trading started. This time, Lazard has been replaced as the adviser on the sale by NM Rothschild & Sons, another boutique investment bank.
Royal Mail, which appointed Peter Long as chairman-designate earlier this week, last month posted higher profit for the financial year to March 29 as cost-cutting measures in the UK offset lower-than-expected revenue in its parcels business. It reported a pretax profit of GBP569 million for the year ended March 29, up from GBP421 million a year earlier, even though revenue declined to GBP9.42 billion from GBP9.46 billion.
The legacy postal operator still has an obligation to deliver post to every address in the country and has been going through a transformation and efficiency drive as it positions itself to cope with the burgeoning parcels market and the gradual decline in the letters market.
Chancellor George Osborne, addressing MPs as part of the Queen's Speech debate on the economy, said the government will start to sell down the shares this year. The government holds a 30% stake in Royal Mail, with the remaining 70% owned by a combination of employees, who own 10%, and private investors.
"I am today announcing that the government will begin selling the remaining 30% shareholding we have in the Royal Mail. It is the right thing to do for the Royal Mail, the businesses and families who depend on it ? and crucially for the taxpayer," said Osborne.
The Royal Mail float is part of a wide-ranging package of measures outlined by Osborne designed to cut Whitehall spending and raise money in the current financial year to the end of March 2016. Excluding the GBP1.5 billion the government has estimated it will make from the sale of Royal Mail shares, Osborne also outlined a total of GBP3.07 billion in cost savings to be made by different departments.
The biggest savings include GBP500 million in defence, GBP545 million from transport, including the sale of land around the King's Cross regeneration area in north London, and GBP450 million from the business department.
The government said the savings would be made primarily through efficiency savings, tighter control of budgets to drive underspends this financial year, and asset sales. The asset sales include the sale of the King's Cross land, estimated to be worth around GBP345 million, and increased sales of public sector land by the Department for Communities and Local Government.
Last month, Osborne said a new UK government-owned company has been created to sell off more than GBP23 billion in assets this fiscal year. It was creating by unifying Shareholder Executive, the body responsible for the government's holdings in companies such as Royal Mail and uranium enrichment company Urenco, with UK Financial Investments, which takes charge of the taxpayer's holdings in bailed out banking assets like Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC.
UK Government Investments will be tasked with getting good value for taxpayers as shares in entities such as Royal Mail, UK Asset Resolution assets, Eurostar and some loans made to students are sold off. UKGI will be held owned by the UK's economic and finance ministry, meaning the Shareholder Executive will be transferred to the Treasury from the Secretary of State for Business, Innovation and Skills. The government wants the new company to be "fully up and running" in Autumn 2015.
By Sam Unsted; [email protected]; @SamUAtAlliance
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