Royal Mail: Pricing of Shares

Lord Donoughue Excerpts

Tuesday 22nd October 2013 Lords Chamber

Asked by

[Lord Donoughue]

To ask Her Majesty’s Government whether any shares in Royal Mail offered at 330p were issued to any of the banks involved in advising on the flotation price, or to any of their employees; and what are the total fees to be paid to those banks for advising on the offer pricing of the shares.

[Lord Popat (Con)]

My Lords, no individual employee working on the transaction or investment bank division was allocated shares. Other divisions of our banking advisers, separated from the investment banking divisions by the information barriers, were allocated 13 million shares. This is standard practice. The underwriting banks will share a maximum fee of 1.2% of the IPO proceeds, or £16.9 million. That maximum includes the potential discretionary fee of £4.2 million. The actual fee will be finalised shortly. Lazard will receive £1.5 million, as the Government’s independent adviser.

[Lord Donoughue (Lab)]

I thank the Minister for that reply. Is he aware that this morning the share price of the Royal Mail reached a peak of 507p, which is an advance of more than 50% on the offer price? In light of that, does he agree with the comment made in the Financial Times on Saturday? It said:

“The only loser is the taxpayer, whose furniture has been flogged—but at a fraction of its market price”.

Will the Government not try to recover something for the ripped-off taxpayer by at least insisting that they do not pay those exorbitant fees to these inadequate advisers?

[Lord Popat]

My Lords, we were given advice on the price for the shares by a large number of institutions. We took into account a recent flotation of a similar organisation in Belgium. We also took a view on the price determined for recently quoted companies in the UK. The price range was between £2.60 and £3.30. We pitched at the higher amount of £3.30. This flotation was very successful despite the difficulties happening in America and the impending strike by the union.