Wanted: more advisers to deliver a Royal Mail sale
THE investment banks are on board and now the next stage ahead of the ultimate privatisation of the Royal Mail is about to be sorted; the appointment of a financial public relations team that will sell a deal to the City via the financial media.
Various firms, including City heavyweight RLM Finsbury, are vying to advise the parcel and letters delivery group on its path towards the private markets either through a sale or a share issue.
Those who pitch for the business will come up against Brunswick, the incumbent.
Brunswick has a strong card to play; not only is it one of the City’s dominant firms but it is also the one that advised Direct Line, the insurance group, on its partial separation from owner RBS, in what was unquestionably the flotation of the year for London’s main market in 2012.
The appointment of a financial PR firm often, but not always, indicates that a deal is within months of coming to market.
So although there is no timing as yet, the company and its chief executive, the Canadian Moya Greene, appear close to putting the finishing touches to the pre-flotation line-up.
Crucially, the group, which has been shorn of its post offices business, is now in a healthier financial position than it has ever been. It has a growing parcels delivery business, endorsed recently by Amazon, which is growing quickly as its letters business declines. Recent financial results showed a 12 per cent jump in half-year pre-tax profit to £115m.
Aside from the lifting of several price controls, a major reason for the transformation in Royal Mail’s finances has been the government’s decision to take over its giant pension fund, which saw £28bn of assets and £38bn in liabilities transferred to the state, and meant there was no equivalent to 2010-11’s £292m deficit payment.
In terms of financial advisers, perhaps the biggest surprise so far has been the appointment of STJ Advisors, a boutique, that was hired by the group to provide advice for the bank selection process.
STJ, principally an adviser for private equity groups planning to sell an asset, has risen to prominence despite frustrating some of the investment banks it has worked with on deals. Banks complain that STJ tries to second guess them and interferes in the deal process.
It was recently hired by Spanish bank Banco Popular to advise on its rights issue deal and played a key role in setting a narrower discount for the new shares in the rights issue than the banks, headed by Deutsche, would have preferred or suggested.
As a result of STJ’s deliberations, Royal Mail’s long-standing adviser Barclays remains on board and both Goldman Sachs and Bank of America Merrill Lynch have been instructed to assist with early investor findings.
Oh, to be a fly on the wall at some of those meetings between STJ and the other bankers.
Those who have studied the business say it could be worth anything between £2bn and £4bn, even with the extension of the obligation to provide a universal service. While this wouldn’t fill a major hole in government finances, many in the City feel a successful flotation of the Royal Mail would send a strong positive message of dynamism ahead of an election.
david.hellier@cityam.com