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Is it worth selling the Royal Mail?

By Chris Dawson July 18, 2013 - 9:36 am

The government have to get the Royal Mail sell off right. If the share price rises immediately after the sale then they will be accused of selling one of the country’s Crown Jewels at a knock down price. If the IPO bombs a la Facebook style then investors will have no confidence in government sales and disposing of the country’s temporary assets – the banks – any time soon will be almost impossible.

Let’s not forget that Royal Mail and the banks are effectively owned by the tax payer, so the government need to keep both investors and the British population happy and that’s a tricky balancing act.

YouGov BrandIndexWe love the Royal Mail

Royal Mail has been named as the second most improved brand for the first-half of 2013, according to YouGov BrandIndex, which tracks consumer perceptions. The government are selling an asset the country values and it would appear that the country has very little appetite for selling off the Royal Mail.

Not only must the sell off be a success, but the country loves the Royal Mail brand and will likely turn on the government if the share prices rises too high.

Should Royal Mail be PrivatisedBusinesses view of the Royal Mail Sale

A recent survey by Create.net has revealed that ecommerce businesses in the UK hold little faith in the privatisation of Royal Mail and have serious concerns that it will affect their businesses in a negative way.

Results show that whilst the vast majority of businesses do use Royal Mail, over 80% think that privatisation is the wrong choice.

Sarah Kibbler of MissCraft, who used to work for Royal Mail, said “It will be run more like a money-making business rather than a service, meaning prices may well go up. This could be crippling for me as a small business as my prices will have to go up. It could truly hurt small businesses which play a very key role in the country’s economy at the moment. This country needs to find its feet again, produce more jobs and get more companies out there, not make it harder for us”.

Will Royal Mail Sale Affect Business54% of respondents felt that their businesses would be affected in a negative way, with some lamenting that further price rises and reduction of service could spell the end of online businesses serving rural areas. Sue Anderson of The Wrapping Ranch said, “Customers living in rural areas will definitely suffer with privatisation as deliveries will become scarcer and more expensive. Our business will suffer too as we supply goods to many customers in the highlands of Scotland etc. who do not have shops that sell our type of merchandise”.

However, not all respondents felt this would be the case, with Gary McConnell, who sells oriental imports through through his online shop Jade Bagua Imports, commenting “With Royal Mail answering to private shareholders, they will be held more accountable and I envisage an increase in quality not a decrease. I look forward to this vital part of my business being privatised and have absolutely no concerns whatsoever that service will be affected or that there will be any controversial price rises”.

Bernard Rangel, who sells jewellery online through his business Belissima B, felt this is the right time for change to be implemented in order for Royal Mail to keep up with modern business practice; “It should have been done ages ago. Governments are too prehistoric and covered in red tape to be agile in this new business environment”.

Call for Royal Mail ReferendumOver 70% believe that a referendum should have been held over the decision and some respondents felt that even now they are ill-informed over what the privatisation could mean for their businesses.

Claire Mills of Crab Tree Lane who sells hand crafted gifts online said, “Public consultation of some kind would have been preferable. This could have a significant impact on private and business users which hasn’t been fully explored or communicated”.

Should Royal Mail be Privatised YouGovPublic view of the Royal Mail Sell Off

It would appear that the general public’s view of selling the Royal Mail matches that of businesses, two-thirds of British adults oppose the privatisation of the Royal Mail, including 36% of Britons who “strongly oppose” it.

YouGov research shows that selling the Royal Mail is opposed or strongly opposed by 67% of British adults, and supported by just 20%. Most of the passion about the plans appears to be among those who oppose it – 36% of Britons “strongly oppose” privatisation, compared to only 4% who strongly support it.

The government and Royal Mail management do of course assert that we’ve got it all wrong and that privatisation is a good thing. The Government has said it is not a good owner of large businesses and point to many successes such as Rolls Royce and BP who have flourished in private ownership. However not everyone is so sure, pondering the size of their energy bills which they now pay to to overseas investors.

One can’t help but wonder if the government is no good at running large businesses what they’re doing running the country. Surely UK Plc and the business of governing is akin to running a business? They have customers (the public) who consume their services, income (businesses and individuals that they tax), suppliers (we won’t bother mentioning large failed IT contracts and the like) and various business divisions to run (Police, NHS, Schools, Royal Mail).

If the government claim they’re not very good business owners it’s no wonder the country is in debt, but perhaps selling Royal Mail is the solution to the UK Debt mountain?

What difference will Royal Mail sale make to public finances?

The UK National Debt is about £1,377.4 billion so selling Royal Mail for £2-3 billion really won’t be noticed. Worse than that, the budget deficit (how much more the government overspends) is still running at about £121 billion. To date the country hasn’t paid a penny off it’s debt and it’s still growing with an overspend by the government of around £2.3 billion each and every week of the year.

Selling the Royal Mail for £2-3 billion will simply save one weeks overspend or in other words it’ll make no difference whatsoever to the country’s finances. It certainly won’t make even the tiniest of dents in the country’s trillion pound mountain of debt. It’s like owing twenty grand on your credit card and someone giving you a tenner.

  • Gerry007
    4 years ago

    .
    As RM are into a good profit period, then I would postpone any floatation for a year.
    The Government should grab the profits for a few years to come.
    That will at least be another year from the General Election.

    £2-3 billions is peanuts in today’s terms.

    • 4 years ago

      To be fair the profits (last year £440 million) are also peanuts.

      I think the question should be more is the Royal Mail a valuable UK asset and if not why are we also not flogging off the NHS and polics.

      If the government is that bad at running big business then step aside and let the company run itself and curb legislation holding Royal Mail back.

      Remove the requirement for Royal Mail to do the donkey work for their competitors and let them compete on equal terms. If they need finance let them access it in the way other PFI projects work.

      The money is irrelvant… let’s wait and see which investor is first to buy a big enough share to have the Queens head adorning stamps with their brand on. The funniest suggestion I’ve heard so far (maybe not so funny) will be for Branson to get a slice and have Virgin Queen stamps

    • 4 years ago

      There are eminent Historians who believe that the “Virgin” Queen(Queen Elizabeth 1 to those who are a bit weak on British History) was not a Virgin after all and some would be happy to name her various suitors.

      I on the other hand am happy to accept the normal version of History that she was a Virgin to her demise(but there again I believe in other fictional and mythalogical beings such as Cambridge_Blue and the tooth fairy)

    • Gerry007
      4 years ago

      .
      What…..Richard Branson’s not a virgin!!!

      Oh Gord I always thought he used the name because of it…

      Only a joke of course [I think].

    • Cambridge_Blue
      4 years ago

      History is bunk and there is and never has been a ‘normal’ version apart from those daft anough to believe that fiction like you.
      To the winners the spoils and also the option to write history – it has ever been thus.
      You really do know nothing of the real world do you.
      God Bless ‘the tooth fairy’.
      pip pip

    • 4 years ago

      The Quote “History is Bunk” has been used many times over the years. Most often by people like yourself who know and care little for History. While people like me who have a fascination for History would never use this quote(or very rarely).

      In fact History has many lessons for us. Or it should have because it keeps repeating itself over and over again.

      There are some uneducated clowns who will tell you that just because we have computers and the internet and high speed communications etc we cannot have Financial Crashes like the Great Depression or even the South Sea Bubble. Or indeed we could never again have a repeat of the circumstances that brought about the First World War etc.

      Unfortunately History will continue to repeat itself because Mankind is essentially the same with the same inbuilt faults. In addition each generation thinks that the lessons of the past are not relavent to them. So they ignore the lessons and promptly make all the same errors all over again with exactly the same results.

      The trouble is with your minimal IQ you are far too stupid to realise this.

    • Cambridge_Blue
      4 years ago

      Well my minimal IQ has served me very well indeed to date thanks and I don’t even need to write ever more verbose and pointless posts like you.
      Nonetheless do remind me – from which University did you gain a first class honours degree?
      God Bless ‘the history man’.
      pip pip

    • Gerry007
      4 years ago

      .
      Chris D:

      I think RM will show some really increased profits over the next few years…
      For this reason alone RM should not be sold [Privatised] yet!!.
      It will also be a political disaster for the coalition if after privatisation some large private companies [shareholders] make millions [if not billions] out of it when it was sold too cheaply.
      440m may well be peanuts. But also 2-3 billion is also.
      With the banks starting to turn around they will make that much in a qtr…

      Re; The NHS & Police. No business in their right mind would touch either. Both are a national organizations [unlike RM who are offering a commercial service to C2C & B2B].
      Although many of the Police’s jobs have been hived off into the Private sectors [think G4S].

      A RM rep told me many of the new contracts with TNT/UKmail etc are being rewritten on renewal to make them compete.
      TNT are also known to be cherry picking central city services & leaving the outer areas to RM [typical Corporate attitude].

      My Local posty has already decided what he is going to spend his handout on……So much for loyalty….

    • 4 years ago

      I find myself wondering just what the £3 Billion valuation is based upon for RM? I do not have a list of their properties around the Country or other assets but £3 Billion does sound low.

      It is always difficult to value a Business. After all there are several differant techniques and they could all give varying final answers. In addition if you are valuing such as buildings whose valuation do you accept or do you get them all valued yourself. Indeed in the history of business there have been several takeovers where the valuations produced by the selling business have proved to be a total fiction both very high and indeed very low. Which has meant in the long run that the buying company has either made a significant loss or profit subsequently.

      What price would you value a sorting office at? and RM no doubt have may such across the country.

      However if £3 Billion did turn out to be reasonably accurate the £440 million profit is a reasonable position given that over the last few years they have been recovering from a very poor position and if it is a step on the ladder to future success could be a good position to start from.

      However RM is a National Asset. Should the Government really be selling National Assets for a short term benefit but potentially a long term loss to the Nation? I am not so certain and looking at the earlier rounds of Privatisations it will take a lot to convince me that the Government is right(but there again the present Government would find it almost impossible to convince me that they are ever right about anything).

    • 4 years ago

      Well as a starting point a price of around £1 billion was put on selling half of the Royal Mail Mount Pleasant sorting office in central London this time last year.

      There are around 1400 delivery offices around the country.

      It all adds up to a fair bit of property for the potential new owners to asset strip, sell off and rent back.

      Royal Mail’s annual turnover is about £9 billion.

      However don’t forget to ask about the £8-9 billion pension deficit. It won’t worry the new owners though, that’s not being included as part of the package. We tax payers apparently are quite willing to hold onto that massive liability according to the government.

    • 4 years ago

      On those figures Chris D the whole sell off is a typical Tory Governments state assets give away to their friends in the City. No doubt the Billions in property deals will all be funnelled through City Companies that in a few years time will have retired politicians holding high income directorships on their Boards.

      While these tory politicians and their friends make millions(or more likely Billions) out of the sell off we the users of RM services will be expected to pay for it through the nose an infinitum.

    • Gerry007
      4 years ago

      .
      No doubt as time progresses the full inventory of the sale will be published.

      IF freeholds are included[IF] 2-3 billion seems silly cheap…..

  • Inspector Gadget
    4 years ago

    There arn’t many privatizations that have gone well. BT, maybe? Can’t think of any others.

    • JD
      4 years ago

      ‘gone well’

      – from which perspective exactly?

      Arguably they have all gone well but perhaps not always from the same perspective!

  • Cambridge_Blue
    4 years ago

    The sooner RM are privatised the better.
    They are rotting from the inside out and need to make substantial internal efficiency gains plus continued big investment if they are to even survive.
    It won’t be pretty as they cut and re-organise but it has to happen otherwise they will continue to be an ever bigger drain on the public purse.
    They are in a competitive market and there should be no issue with letting them compete with other carriers.
    It will also, over time, flush out the true costs of the USO, and hopefully one day that will also get reduced to the absolute bare minimum.

  • JD
    4 years ago

    Privatisation may enable another respected entity to accumulate enough shares to ‘take over’ RM.

    But until then are we not simply left with the same management?

    Perhaps we should all buy all the shares that we can get our hands on??

    • Dan
      4 years ago

      We’ve all got an equal share now!
      If you’re not happy with the management – Get your MP onto it…
      If you’re not happy with your MP, get rid…

      Where does the accountability come when Royal Mail is sold off – Accountable to people with enough money to buy some shares –
      Pooh sticks! This country’s a fiddle

  • Isleman
    4 years ago

    Just means that if they put up mail prices people will either go back to shops or not bother buying on-line.

  • Cambridge_Blue
    4 years ago

    RM prices are going to go up in any event – it is just a matter of how much and how quickly.
    If they don’t tackle their internal inefficiencies and invest as well then prices will increase even more as their cost base balloons again compared to their competitors.
    The politicians need to get RM at proper arms length to put the bite on the USO subsidy and force RM to make the required changes.
    Probably short-term pain for longer term gain I’m afraid.
    It’s a mess but it has been so for decades so it will take some fixing but as an online seller I also wish if didn’t have to be so hard.

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