The Privatisation of the United Kingdom Royal Mail

It seems to be a common theme of governments globally to identify assets that could be better managed by the market and in doing so allow for the release or redirection of funds for future governing.

It is within this context that the recent privatisation of the United Kingdom mail service –  Royal Mail – is of particular interest.

Royal Mail was established in 1516 and remains responsible for mail collection and delivery throughout the United Kingdom.  Following the Postal Services Act 2011, a majority of the shares in Royal Mail were floated on the London Stock Exchange on 15th October 2013 and the company became a member of the FTSE 100 Index on 23 December 2013.  The United Kingdom Government continues to hold a 30% stake in Royal Mail.

Following the privatisation, the United Kingdom National Audit Office undertook a review of the process.

In what is a somewhat mixed report card, the National Audit Office noted:

By floating Royal Mail on the Stock Exchange the Department achieved its key objectives of introducing private capital and commercial disciplines.

Given Royal Mail’s prospects and prudent initial capital structure it is now less likely that the taxpayer will have to provide public support for the universal postal service.

We consider that in order to achieve its main objective, the Department took a cautious approach to a number of issues which, taken together, resulted in the shares being priced at a level which was substantially below that at which they started trading.

It continued:

The strong share price increase of 38 per cent on the first day of trading and the trading range throughout the first five months indicates that Royal Mail’s shares are worth much more than this process was able to extract … We have concluded that although the Department achieved its primary objective of delivering a sale of shares within this Parliament it could have achieved better value for the taxpayer.

So what is it that the National Audit Office considered could have been done differently:

  1. The government should consider whether alternative methods of accessing equity markets would achieve better value than the process used to privatise Royal Mail.
  2. Government should consider ways to reduce reliance on professional advisers, and ensure that where it does use advisers it seeks to optimise overall value for the taxpayer.

Perhaps the most important lesson from the process, though, is that there are no new lessons and that the experience of the past should educate the future:

The National Audit Office conducted value-for-money examinations of the majority of the privatisations undertaken in the 1980s and 1990s and the lessons learned should not be forgotten.

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Organisations – whether publicly or privately funded – will always seek to reconstitute themselves to better serve the current economic realities.  A considered approach designed to extract the greatest value from the reconstruction is the goal to which all should strive.

To that effect, can it truly be said that the Royal Mail privatisation achieved that outcome?

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