Today's share price confirms the company was grossly undervalued, cheating the taxpayer out of billions of pounds
'It turns out that the sale of Royal Mail was, in fact, completely botched.' Photograph: Dan Kitwood/Getty Images
"There's no way we will sell Royal Mail 'on the cheap'," promised the government in its Royal Mail: Myth-Busters factsheet, issued before the sale of most of our stake in the public asset, last October. Many commentators at the time thought the sale was irrational and the company grossly undervalued.
When shares finally opened for conditional trading, their price jumped from the government's valuation of 260p-330p each to more than 450p. The business secretary, Vince Cable, dismissed this as of "absolutely no significance … it is froth and speculation". He asked to be judged on what the price looks like in three months' time.
Well, three months have come and gone and the price of the shares is, at the time of writing, sitting pretty at over 600p each, with a high of 610p a few days ago – an 80% climb on their original price. This suggests that the company was undervalued by a giant £2.8bn: six times the projected saving this year by the imposition of the bedroom tax; six times the amount of money the government hopes to save by the imposition of a levy that is causing misery to thousands of vulnerable people and their carers up and down the country. And Royal Mail could have further to go yet. JP Morgan predicts the price will settle at about 700p a share. Earnings-per-share forecasts bear this out – they estimate a 30% gain this year.
So, now that it turns out that the sale of Royal Mail was, in fact, completely botched and has cheated citizens of billions of pounds' worth of value, where is the apology? Where are the resignations? If something like this had happened at local government level, there may have been questions of criminal prosecution. Why do our representatives in Westminster feel that they don't have to apologise when they get it so disastrously wrong, that they don't even have to give an account of themselves? They can simply ignore criticism; wave it away as if it were an unsavoury smell.
Goldman Sachs and UBS, the companies paid a stonking £16.9m by the government for managing the privatisation, were questioned about the price discrepancy by a parliamentary committee in November. They denied any impropriety, claimed the 330p price was correct according to their research and described the whole fiasco as a "well-executed transaction". Less than a week later, Goldman Sachs issued a note to its investors, advising them that the price of the shares would settle at about 610p.
When it emerged that the very companies advising on the sale were offered millions of shares in Royal Mail, shares which today represent a potential profit of over £35m, the Department for Business, Innovation and Skills said there was no possibility of conflict. This was because shares were offered to the investment arms of the banks and there are"Chinese walls" in place between them and any employees working on the sale. When it transpired that one of the biggest potential private beneficiaries from the flotation was hedge fund management company, Lansdowne Partners, and that George Osborne's best man, Peter Davies, was part of their management team, more denials came: "At no point was George involved in, or even made aware of, the allocations," said a Conservative spokesman. More "Chinese walls". Sir Paul Ruddock, Lansdowne's former chief executive, was awarded a knighthood last year after donating £500,000 to the Conservative party, although he denies the two are linked and stresses that his knighthood was for his services to arts.
Royal Mail has already announced its first post-privatisation price rise on business rates, explicitly to "help secure the sustainability of the Universal Service". Meanwhile, Royal Mail's chief executive, Moya Greene is rumoured to be in line for a £1.5m pay packet. After all, she has magically doubled the company's value in three months, hasn't she? Vince Cable is vowing to do his best to block such a package. Oh, the bitter irony … Vince Cable "playing boss", three months after selling the service, at a bargain basement price. Talking tough on a single payoff, three months after presenting City investors with a bumper £2.8bn bonus. Of our money.
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