After High Demand, Royal Mail Shares Are Priced at High End

Andrew Winning/Reuters

Royal Mail, whose roots date back to the court of Henry VIII in the 16th century, is so deeply woven into the public fabric of Britain that even former Prime Minister Margaret Thatcher did not push to sell it. Three attempts over the last two decades to privatize the postal service failed in the face of overwhelming objection.

All that has changed.

On Friday, shares in Royal Mail will start conditional trading among institutional investors, and they will open for full public trading on Tuesday on the London Stock Exchange. The initial public offering of stock, which evokes memories of the many privatizations in the 1980s, when the government sold shares in its telephone and gas companies, has been met with both enthusiasm and lingering opposition.

The offering caused an unusual frenzy among retail investors this week. It was oversubscribed seven times, with several brokerage offices staying open until midnight on Tuesday, the deadline for investors to register to buy the stock. Shares were priced on Thursday at £3.3, or $5.28, at the top of the range that the government had hoped to receive. That values the company at £3.3 billion, or $5.28 billion, the biggest privatization since the government sold the railways in the 1990s.

'The buzz is huge,' said David Scott, a stockbroker at Redmayne-Bentley, which has been handing out information fliers about the pending share sale on London streets. 'There hasn't been a privatization of that magnitude in a long while, and people think they can make an instant gain. We've been absolutely inundated with calls from clients.'

Wagers placed with some financial spread-betting operators, including IG Markets, suggested that the shares could rise 30 percent when trading starts. Mr. Scott said many investors made large gains from the privatizations of the 1980s, including the sale of British Telecom in 1984, British Gas in 1986 and some regional electricity companies, and hope to repeat that with Royal Mail.

The government said on Thursday that it made 33 percent of the shares available to the public, more than the 30 percent it had expected. Institutional investors have 67 percent of the offering. The government is keeping a 38 percent stake, but that could drop to 30 percent should it choose to exercise an overallotment option.

Royal Mail employees are unusual beneficiaries. When the government decided last month, to sell shares in the company, it said 150,000 employees would be offered free shares, worth 10 percent of the company. Postal workers will be able to closely follow the share price: the company said it set up large screens in its mail centers and delivery offices for the stock market debut.

Not everyone is embracing the sale. The Communication Workers Union, which represents some Royal Mail employees, said on Thursday that it would continue to oppose the sale even after more than 99 percent of Royal Mail staff members accepted the offer for free shares. The union, which is awaiting the results of a strike ballot on Wednesday, said it would conduct a protest outside the London Stock Exchange on Friday morning, with protesters dressed as robbers and banners saying 'the Great Royal Mail Robbery.'

'There is still no reason to privatize this great British company, which is successful in public ownership,' said Billy Hayes, the union's general secretary.

Some say the price is too low. This week, the business secretary, Vince Cable of the Liberal Democrats, clashed with his counterpart of the opposition Labour Party, Chuka Umunna, over the offering price. The Labour Party said Royal Mail was being sold too cheaply and many retail investors would lose out.

The government is 'selling this at a huge undervalue,' Mr. Umunna said in a television interview on Monday, indicating that the company might be worth an extra £1 billion, or $1.6 billion. The share sale was 'a dream' for speculators, he said, 'but an absolute nightmare for taxpayers,' who are 'now hugely shortchanged.'

In an open letter to Mr. Umunna, Mr. Cable said that Mr. Umunna's comments might be irresponsible because they could imply that there was an easy bargain to be made. 'You should consider the risk that you may be influencing the decisions of retail investors,' Mr. Cable wrote. 'Equity investment always involves risk, particularly when the company in question is new to the market.'

Different governments considered selling Royal Mail over the years before Prime Minister David Cameron decided to proceed. The sale comes when the company's finances have been improving and the government's Treasury is eager to eliminate the budget deficit.

The sale also comes as demand for initial public offerings in Europe has recovered recently as more investors bet on the economic recovery of the region and regard some of the share prices as relatively cheap. Shares in Foxtons, a British real estate agency, gained 19 percent on their first day of trading on Sept. 20. Tarkett, a French floor maker, and Meridian Properties, a real estate investment trust based in Amsterdam, are preparing to sell their shares. In June, Belgium's postal service, Bpost, raised $3.9 billion in a public offering.

Some investors view the industry as a bellwether for the economy because sales generally rise alongside improving consumer spending. Several analysts said the share sale would allow Royal Mail to further expand its package delivery business. Like larger rivals FedEx and DHL of Germany, which is part of Deutsche Post, Royal Mail has benefited from greater demand for parcel services as more consumers buy goods online, which are delivered to them by mail.

'But wherever there's healthy growth, there's also fierce competition,' said Richard Hunter, head of equities at Hargreaves Lansdown in London. 'The share sale certainly caught the imagination of everyone, but with all the hyped pricing, it remains to be seen whether Royal Mail is value for the money.'

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