May 29, 2013 3:38 pm

Goldman Sachs and UBS appointed to lead Royal Mail flotation

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A person posts a letetr in a Royal Mail post box.©Getty

Goldman Sachs and UBS have been appointed as the lead banks to run the flotation of the Royal Mail, the largest UK privatisation for two decades.

The initial public offering in London is expected to take place later this year, valuing the state-owned mail operator at up to £3bn.

The two banks will be joint global co-ordinators as well as being joint bookrunners alongside another two banks, Barclays and Bank of America Merrill Lynch. All four had already been advising either the company or the government on options for a planned sale.

Their remit will be to prepare, structure and execute a flotation in line with the government’s objectives, which include “the protection of the universal service” and getting best value for taxpayers.

Michael Fallon, business minister, said an IPO was still the “preferred option” for the Royal Mail but insisted that the government had made no final decision on the sale structure. “All options remain on the table,” he said.

Other options are understood to include the government selling an initial stake to a buyer such as a private equity house, sovereign wealth fund or rival operator.

However, when the previous government tried to sell a minority stake in the business in 2009 there was only one bidder, CVC Capital Partners, which has stakes in the Belgian and Danish postal services.

A successful flotation at close to £3bn would propel the Royal Mail into the FTSE 100 and make it the largest privatisation since the government sold the railways in the 1990s. Ministers are hoping to get a good price for the business given that the stock market is currently in the grip of a bull run.

The fees for the banks working on the deal are set to be less than 1 per cent, according to bankers familiar with the terms of the deal. This is below the normal fees for an IPO of between 1 and 2.5 per cent, but the banks will get slightly more if the deal goes well. Lazard is separately advising the government on the sale plans.

“Privatisations are for prestige, not for budgets,” said one equity capital markets banker working on the deal. “This was the most sought after mandate in the UK and the competition for a bookrunner spot was fierce.”

The plan comes as the coalition also steps up plans for a wave of privatisations including Urenco, the uranium group, and the student loans book.

Mr Fallon aims to woo postal workers by offering at least 10 per cent of shares to staff. The CWU postal union thinks these are likely to be offered at a discount but argues that a “new business model” balancing the company’s commercial and social objectives would be a better way to engage staff.

“Preparations for the sale of shares in Royal Mail continue to build momentum and these appointments represent another important step towards a sale of shares this financial year,” Mr Fallon said.

“While all options for the form of sale remain open, it is important that we are in a position to move ahead swiftly with our chosen route once we take the final decision. Given the lead time and preparatory work involved in readying an IPO, the appointed banking syndicate will work to make sure we are ready to proceed when the time comes.”

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