The Government chose to launch its plans to float Royal Mail with great fanfare on the same day unions were holding strike talks over the controversial sell-off.
Such stand-offs with your opponents are business as usual in politics, but whether the drama impresses the City or ordinary investors is another matter.
The fraught backdrop could count as a negative with potential buyers, who may well be wary of a business where staff are in open revolt and customers are ultra-sensitive to any degrading of the service.
On the other hand, the political stakes are probably high enough now that the Government will price the shares cheaply and the dividends generously to ensure heavy investor demand and claim the float as a success.
And despite their strident protests, staff could yet be mollified by free shares giving them 10 per cent of the company and a personal interest in its fortunes.
Attempts by previous governments to privatise the Royal Mail have foundered due to opposition from many quarters, and possibly also fear of a public backlash should it go wrong.
Even Margaret Thatcher in her 1980s heyday baulked, claiming she was ‘not prepared to have the Queen’s head privatised’.
Today, the Government promised the public the continuation of a ‘six-days-a-week, one-price-goes-anywhere universal postal service’ at the same time as trumpeting to potential investors the opportunity to modernise the business and allow it to invest in the future.
Investors thinking about a punt on the shares will be weighing factors like the future prospects of the parcel service – which makes up nearly half of turnover – and the access to capital markets the business will get after the float.
City players running a ‘grey market’ on the valuation reckon Royal Mail could be worth £2.88billion on its market debut, putting it just on the cusp of entering the FTSE 100.
What does the City say?
Ishaq Siddiqi of ETX Capital said Royal Mail had secured borrowing facilities totalling £1.4billion from a syndicate of banks to help the privatisation to go down without a hitch.
‘News of debt facilities lined up for Royal Mail are allaying any concerns the privatisation will be difficult, particularly as industrial strikes in the lead up to this floatation unnerved some investors.
‘Industrial action is still expected but details of the offer this morning offer some much needed clarity for prospective investors.
‘We are now looking out for more details on the indicative price which are due in the coming days. We expect it to be priced very attractively by the government in order to garner the demand to deem this IPO as a success given the importance surrounding it.
‘Our clients have had the opportunity to trade the grey-market listing for Royal Mail which we set up in July and we have seen demand for the IPO pick up since we included the spread on our platform.’
He added: ‘Our current spread for Royal Mail is based on the indicative market capitalisation of the government’s stake – our spread is priced at the top end of the range, between £2.8billion to £2.9billion.’
Paras Anand of Fidelity Worldwide Investment said: ‘The fact that the IPO has launched clearly underlines the government’s view that maintaining the universal delivery service will best be preserved if the Royal Mail is privately run as the move will clearly be in the face of union opposition.
‘The opportunity for the business is around the potential growth in parcels as an increasing share of UK consumer retail spend is done online and, with the last mile delivery network, Royal Mail is in a strong position to benefit from that.
‘Importantly management has done a commendable job in returning the business to profitability and Moya Green has shown herself to be adept at engaging with all stakeholders in the business – this achievement cannot be underestimated.
‘The shares will be floated with what will likely be a higher than average dividend which would make it attractive for income-seeking investors.’
Jason Hollands of Bestinvest said the Royal Mail floatation represented the biggest privatisation in over quarter of a century and would see a major new constituent added to the UK stock market.
‘The move is primarily driven by enabling the Royal Mail to access the capital markets in order to compete with the likes of Deutsche Post, and to generate a windfall for the Government as it seeks to repair public finances.’
He went on: ‘The unions have signalled their vehement opposition to the deal and threatened industrial action. This echoes their stance throughout their eighties when, to the embarrassment of the union bosses, many workers quietly bought the shares.
‘The privatisation will extend share ownership across the Royal Mail’s large 159,000 work force, with 10 per cent of the issue earmarked for staff. People think differently about a business they have a stake in, so this is positive in our view.
‘However, there is undoubtedly scepticism towards privatising a quasi-monopoly. Major courier firms are right to flag certain privileges extended to the Royal Mail that they do not enjoy but that does not mean the Royal Mail is devoid of competitive pressures.
‘The spread of email and social media has changed the way we communicate and this has been reflected in declining volumes of letters, once the main stay of the Royal Mail. Yet the surge of online shopping has expanded the parcel market. This is where the opportunities lay for the Royal Mail, as it refocuses to compete with the likes of DHL.’
Chris Beauchamp of IG said: ‘IG’s grey market on the valuation has seen steady buyers, with the implication being that the firm will have a market cap of around £2.88billion on the first day of trading.
‘This puts it just on the cusp of entering the FTSE 100, potentially giving the company a first-class listing on the London market.’