Vince Cable has written to MPs to defend the pricing of the Royal Mail flotation as shares in the postal service closed above 500p at the end of their first full week of trading, representing a paper profit of 52% for investors.
Vince Cable claimed in a letter to parliamentarians that the stock was sold at 330p and no higher because it reflected the risk of strike action by Royal Mail's workforce.
The offering was massively oversubscribed as investors scrambled to buy shares which City experts – and opposition politicians – believed were undervalued even after they were floated at the top of their valuation range.
However, in a letter, released on Friday, to members of the business, innovation and skills committee in the House of Commons, Cable said he had followed the advice of key City investors and insisted that achieving value for money was "about more than just the level of proceeds received on day one".
He said the valuation of £2.6bn-£3.3bn that the government put on Royal Mail had been recommended by the sale's global co-ordinators, Goldman Sachs and UBS, and the price range was endorsed by independent advisers, the investment bank Lazard.
Cable also claimed in his letter that the government had pushed the banks into accepting that the top of the range should be upped from 310p a share to 330p.
Cable said soundings had been taken from a list of 20 City investors who had been selected for "their understanding of the risks inherent in the company's industrial relations".
During what Cable described as "a key point in the transaction process", Royal Mail's management warned him that they would not achieve a pay agreement with unions before the flotation, and that the Communication Workers Union would ballot for strike action.
Cable said he was aware that this development could be "a significant negative factor", and after his team briefed potential investors, some said they would not invest at all. In the event, public demand for shares was such that nearly 690,000 retail investors were awarded £750 worth of shares each – now worth around £1,130.
Despite the apparent fears of Cable's focus group, City investors, hedge funds and pension funds applied for more than 20 times the number of shares available to them. Lazard representatives will be summoned by the parliamentary committee next month to explain their valuation. Unions said Cable's reasoning was "laughable".
Billy Hayes, CWU general secretary, said: "This is Vince Cable trying to absolve himself of a devastating mistake which has lost the taxpayer £900m.
To blame the low share price on the possible threat of industrial action is laughable. This appears to be Vince Cable's own 'froth' in a woeful attempt to deflect blame for losing the Treasury such a significant sum.
"It's crystal clear that the government has rewarded private investors at the expense of public funds." Royal Mail workers voted four to one in favour of strike action earlier this week in a dispute over terms and conditions as well as the privatisation of the company.
More than 100,000 postal workers will stage a 24-hour strike on 4 November. The CWU said the vote came despite the company's offer of a £300 bonus if they committed not to strike. Employees were given shares originally worth about £2,200.
A Royal Mail spokesman said the company had made a significant and generous pay offer and hoped to avert strike action. In the days preceding the sale, shadow business secretary Chuka Umunna had predicted a "bonanza" for speculators.
He said on Friday : "Vince Cable says in his letter that value for money for the taxpayer was 'central' to the government's strategy. Yet today we have seen Royal Mail's share price hit 500p, more than 50% above the amount which taxpayers received for their stake which was sold only days ago."
He added: "Vince Cable has said that he will be judged on where the price is in three months' time and we will hold him to this benchmark." Labour had claimed that the properties owned by Royal Mail were alone worth around £1bn, with three sites in central London available for development.
However, Cable said the value was a fraction of that figure, writing: "Taking into account the overall position of the surplus portfolio and the relative immaturity of these sites in terms of actual development, a combined value of £330m appears at the top end of any likely range."
theguardian.com
Vince Cable claimed in a letter to parliamentarians that the stock was sold at 330p and no higher because it reflected the risk of strike action by Royal Mail's workforce.
The offering was massively oversubscribed as investors scrambled to buy shares which City experts – and opposition politicians – believed were undervalued even after they were floated at the top of their valuation range.
However, in a letter, released on Friday, to members of the business, innovation and skills committee in the House of Commons, Cable said he had followed the advice of key City investors and insisted that achieving value for money was "about more than just the level of proceeds received on day one".
He said the valuation of £2.6bn-£3.3bn that the government put on Royal Mail had been recommended by the sale's global co-ordinators, Goldman Sachs and UBS, and the price range was endorsed by independent advisers, the investment bank Lazard.
Cable also claimed in his letter that the government had pushed the banks into accepting that the top of the range should be upped from 310p a share to 330p.
Cable said soundings had been taken from a list of 20 City investors who had been selected for "their understanding of the risks inherent in the company's industrial relations".
During what Cable described as "a key point in the transaction process", Royal Mail's management warned him that they would not achieve a pay agreement with unions before the flotation, and that the Communication Workers Union would ballot for strike action.
Cable said he was aware that this development could be "a significant negative factor", and after his team briefed potential investors, some said they would not invest at all. In the event, public demand for shares was such that nearly 690,000 retail investors were awarded £750 worth of shares each – now worth around £1,130.
Despite the apparent fears of Cable's focus group, City investors, hedge funds and pension funds applied for more than 20 times the number of shares available to them. Lazard representatives will be summoned by the parliamentary committee next month to explain their valuation. Unions said Cable's reasoning was "laughable".
Billy Hayes, CWU general secretary, said: "This is Vince Cable trying to absolve himself of a devastating mistake which has lost the taxpayer £900m.
To blame the low share price on the possible threat of industrial action is laughable. This appears to be Vince Cable's own 'froth' in a woeful attempt to deflect blame for losing the Treasury such a significant sum.
"It's crystal clear that the government has rewarded private investors at the expense of public funds." Royal Mail workers voted four to one in favour of strike action earlier this week in a dispute over terms and conditions as well as the privatisation of the company.
More than 100,000 postal workers will stage a 24-hour strike on 4 November. The CWU said the vote came despite the company's offer of a £300 bonus if they committed not to strike. Employees were given shares originally worth about £2,200.
A Royal Mail spokesman said the company had made a significant and generous pay offer and hoped to avert strike action. In the days preceding the sale, shadow business secretary Chuka Umunna had predicted a "bonanza" for speculators.
He said on Friday : "Vince Cable says in his letter that value for money for the taxpayer was 'central' to the government's strategy. Yet today we have seen Royal Mail's share price hit 500p, more than 50% above the amount which taxpayers received for their stake which was sold only days ago."
He added: "Vince Cable has said that he will be judged on where the price is in three months' time and we will hold him to this benchmark." Labour had claimed that the properties owned by Royal Mail were alone worth around £1bn, with three sites in central London available for development.
However, Cable said the value was a fraction of that figure, writing: "Taking into account the overall position of the surplus portfolio and the relative immaturity of these sites in terms of actual development, a combined value of £330m appears at the top end of any likely range."
theguardian.com
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