UNLIKE the great privatisations of the Thatcher era, the forthcoming Royal Mail float will not be accompanied by a major publicity campaign – but individual investors will still be encouraged to buy shares as part of the IPO.
The minimum individual share purchase will be £750 but at this stage it is not clear whether there will be a maximum purchase, nor how many shares will be allocated to retail investors.
Business minister Michael Fallon yesterday told City A.M. that he had decided against copying the ‘Tell Sid’ adverts that accompanied the sale of British Gas in 1986.
“I ruled out was spending millions of taxpayers money on a TV campaign – I didn’t see any justification,” he said. “But there will be adverts in the financial pages.”
Investors are now able to register their interest in the offer through more than 40 traditional stockbrokers, as well as online share dealing services such as Hargreaves Lansdown. The shares can included in ISAs and SIPPs.
Alternatively, the government has set up a special Royal Mail website to sell shares direct to individuals. Even though investors are buying shares in a postal company, the government expects most direct sales to be made online using a debit card, although paper forms will still be available.
The government has pledged to offload at least 51 per cent of the company’s shares, with 10 per cent handed to postmen for free.
The remaining 41 per cent will be offered to major institutions with a slice left for individuals.
To complicate matters, all 150,000 UK Royal Mail employees will then have first claim on the shares allocated to the retail offer – leaving members of the public to pick up the crumbs.
As for the investment case, Fallon says it is “up to every investor” to satisfy themselves about the company’s prospects. And unlike the 1980s, the government does not intend to sell the shares at a hefty discount.
But despite making the investment case, Fallon will not be buying: “Those involved in the transaction are expressly exempt from taking part in it.”
In an attempt to convince potential shareholders of the investment case, Royal Mail yesterday said it is planning a £133m full-year dividend for July 2014 – and said it would have paid out £200m if it had been listed for the full financial year.
City fund managers running income funds, which invest in stocks paying fat dividends, could be at the front of the queue.
“The shares will be floated with what will likely be a higher than average dividend which would make it attractive for income-seeking investors,” said Fidelity’s head of European equities Paras Anand.
Years of heavy redundancies and a growth in its parcel business has allowed Royal Mail to boost profit margins, despite steep declines in the number of letters it handles.
The Royal Mail privatisation does not include the Post Office network, nor does it include most of the company’s pension liabilities.
Both of these will remain responsibilities of the government.