Government statement marks point of no-return for Royal Mail

The British Government yesterday (12/9/2013) announced that the initial public offering (IPO) of the Royal Mail was imminent. However, no specific date was given, with the Government statement saying that the “IPO was expected to take place in the coming few weeks”. This apparently implies a time-frame of four to six weeks, making a float in October the most likely.

There was no indication of the price to be asked however and even the quantity of stock to be sold was unclear with the Government asserting that it “will retain flexibility around the size of the stake to be sold, as this will be influenced by market conditions at the time of the transaction”. However, 10% of the float will be given to employees of the Royal Mail.

The vagueness of the statement gives an impression of politicians in a hurry to push through a privatisation as quickly as possible, but the importance of yesterday’s statement is in marking a point of no-return for Royal Mail.

The British government has been trying to push the organisation into the private sector for at least five years, both in order to finance the Royal Mail’s pension scheme but also because it realises that the mail market is changing beyond recognition and that a state owned postal monopoly will not be able to respond. The example of the Netherlands, Germany and several Scandinavian countries who have partially privatised their postal monopolies has always been in the consciousness of the government. However, up until today the obstacles have been too vast as either a caution of changing such an established institution or the influence of trade unions has proved to be too great.

It should be noted that obstacles still do remain. The trade unions- specifically the communications workers union- are vehemently opposed, although whether they and their members are really willing to harm the new Royal Mail is uncertain. Certainly the offer of free-shares in the company could be a significant inducement to employees to work with the management rather than against it.

It looks certain that the Royal Mail will become a largely private sector entity, however beyond that neither its future ownership structure nor its corporate strategy are wholly clear.