Last updated: October 15, 2013 7:08 pm

MPs to grill Lazard over Royal Mail privatisation pricing

(FILE) British Government Plans To Float Royal Mail Set To Go Ahead'©Getty

Lazard, the investment bank, is to be grilled by MPs about the pricing of the Royal Mail privatisation, amid concerns that investors were allowed to buy into the company too cheaply.

The move came as the shares rose on Tuesday to a new peak almost 50 per cent above the privatisation price.

The government was also criticised by small investors who were still waiting for details of how to sell, or could not get through to a helpline to trade.

The House of Commons business select committee agreed to hold a special session on the flotation next month. Vince Cable, the Liberal Democrat business secretary, who appeared before the committee last week, will give evidence again.

Adrian Bailey, the committee chairman, will write to Lazard, which advised the government on the pricing, asking them to come to Parliament to discuss the process.

The government has come under heavy criticism for allowing Royal Mail shares to be priced at 330p – they hit a new peak of 490p in the first day of unconditional trading on Tuesday and closed at 489p, up 3 per cent on the day.

Moya Greene, the chief executive of Royal Mail, said the flotation had been valued correctly.

One person involved in the business select committee said responsibility for the pricing lay with the government’s advisers rather than ministers. They expressed fears that institutions had been allowed to buy into Royal Mail “on the cheap”.

The Financial Times reported on Saturday that strong demand prompted the government to explore whether it could extract a higher price, but key institutional investors signalled they would drop out if they had to pay more than 330p a share.

Seven banks were involved in marketing the offer to institutions: Goldman Sachs and UBS, as joint global co-ordinators, plus Barclays, Bank of America Merrill Lynch, Investec, Nomura and RBC.

But it is the role of Lazard, the financial adviser to the government, that is attracting scrutiny.

The government asked Lazard to review the price range in the two weeks running up to Friday’s flotation when it became clear demand was high.

It was decided the price was at the right level, after a number of big institutions signalled they would drop out if the price went above 330p. One well-known institution is understood to have already dropped out at that price.

Some people close to the sale believe the question is whether the offer might have been successfully pitched 20p-30p higher, but dismiss the idea that it could have been sold to institutions much above that level.

Lazard declined to comment. William Rucker, chief executive of Lazard UK, has been leading on the deal along with Charlie Foreman.

At Tuesday’s closing price, the market valued the 500-year-old company at £4.9bn, compared with the £3.3bn at which the government sold 52.2 per cent of the shares. Ministers believe the price will fall over the coming weeks.

Tuesday was the first day retail investors who bought through the government's official website or by post could sell, but many were unable to do so because they had not yet received a reference number.

Others were frustrated because the official trading service, run by Equiniti, struggled because of the numbers of people trying to cash in their stakes.

One investor said on Twitter: “Took me 400 attempts to get through to #equiniti Royal Mail sale line. Price dropped 12p in the 1 1/2 hours it took.”

 

CWU ‘confident’ member workers will vote for walk-out

 

Royal Mail’s main union is expected to announce this afternoon that its members have voted for strikes over pay, pensions and job security.

The Communication Workers Union, which represents 115,000 of the company’s 150,000 staff, said it was confident postal workers had voted for strike action, which could mean rolling one-day stoppages in the run-up to Christmas. The union has to give seven days’ notice of any strikes so the earliest they could begin is October 23.

Royal Mail has offered an 8.6 per cent rise in basic pay over three years and a legally binding contract to protect pay and conditions over that period, but the union has been holding out for a 10-year agreement.

Moya Greene, the chief executive, said the company needed “alternative ways to resolve disputes”. She was referring to Royal Mail’s offer to guarantee pay and conditions for three years in exchange for a new framework that would make it harder for workers to strike.

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