Goldman Sachs and UBS bankers yesterday insisted Britain could not have sold the Royal Mail postal service at its current higher price, rejecting accusations that one of the biggest state sell-offs in years was done on the cheap.
UBS and Goldman Sachs, the banks that led Royal Mail’s London stock market float, were summoned before a parliamentary committee to explain why they priced the near 500-year old firm so far below its current market value.
Royal Mail’s shares have rocketed by as much as 80% since Britain sold a 60% stake in October for 330 pence per share, sparking criticism from unions and opposition lawmakers that the taxpayer had been short-changed.
The spotlight on the sell-off, one of the most significant since John Major’s Conservative party sold the railways in the 1990s, comes as Britain is aiming to offload stakes in RBS and state-backed rival Lloyds Banking Group.
Citigroup, Deutsche Bank, JPMorgan and Panmure Gordon, none of whom worked on the listing, also went before the committee to discuss pitches they had made to government several months before the sale, in which they valued Royal Mail’s equity at £3.7bn to £8.5bn.
The eventual float, which also saw Britain hand a 10% stake to Royal Mail staff for free, valued the postal firm at £3.3bn.
The stock was trading at 543 pence yesterday.
“The current price is not reflective of what we could have sold 600mn shares for,” UBS banker James Robertson told the Business Innovation and Skills committee, adding that varying views of risks facing Royal Mail such as its lack of proven profitability led to differing valuations by the banks.
“330p was the price that we could have sold 600mn shares to the target investor base of blue-chip institutions.”
Richard Cormack, co-head of equity capital markets at Goldman Sachs, agreed, saying feedback from potential investors on what they were prepared to pay and the large number of shares on offer were among factors that had determined the price.
A cool performance from the UBS and Goldman Sachs bankers in the face of goading questioning from the committee was backed up by the bankers who were not involved in the float. Citi’s Ben Story said it was “incompatible” to compare earlier higher valuation estimates with the eventual offer price, due to the lack of detailed company information available to the pitching banks at the time.