Can there be a float and strike at Royal Mail?


The government's announcement of its intention to float Royal Mail on the stock exchange is not irreversible.

But it would take something of a market meltdown for the famous letters and parcels business not to become a company listed on the stock market in November - which would end a long and tortuous journey towards privatisation that began in 1992.

Royal Mail has given more detail about what it will look like in the private sector. It plans to pay a dividend to owners of £133m next July, and would have paid £200m if it had been listed for the whole of 2013/14 - which implies that the business is worth around £3bn.

And results just published for the first three months of the year confirm the trend of declining letter volumes and rising deliveries of parcels.

At least 41% of the shares will be sold, to individuals and investment funds, and perhaps more (depending on market appetite at the time of sale) - with an additional 10% given to 150,000 Royal Mail employees.

So almost all of Royal Mail's people (it employs 167,000 in total) will be endowed with about £2000 each of free shares, paying an annual dividend or income to them of around £133.

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There is a risk of shares being offered... at a time when industrial action brings the mail service to a standstill ”

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And Royal Mail staff will have first dibs over the public if they want to buy shares - and can subscribe for a minimum of £500 of stock, compared with a minimum purchase of £750 for everyone else.

But here is what is very unusual about this share sale. It is taking place at a time when the CWU union is balloting its 125,000 Royal Mail members on a strike, over pay, pension changes and post-privatisation terms and conditions of work.

As Royal Mail admits, there is a very real risk of its shares being offered for sale, including to postal workers, at a time when industrial action brings the mail service to a standstill.

I can certainly never remember any business being sold on the stock market at a time when it had been brought to a grinding halt by a strike. But that does not mean a flotation in those circumstances can't and won't happen.

There is the very real, or perhaps surreal, prospect, of postal workers simultaneously downing tools (parking their trolleys) and subscribing a few hundred quid for Royal Mail shares.

A couple of other things stand out for me in today's announcement.

First, that the business does appear to be on a trend of improving financial results. In the first three months of the current year, its operating profit margin (the ratio of profit to revenue) was 5%, compared with 4.4% last year and almost nothing the previous year.

And it is generating healthy amounts of cash - £110m for the first quarter of the year, which implies free cash flow will be more than £400m for the full year (which explains why it feels it can afford to pay out dividends of £200m).

What is also interesting is that it is refinancing all its debts. Or to put it another way, it will henceforth borrow from the private sector rather than from the government.

Funnily enough, this should save Royal Mail a fortune - because it is currently paying interest to the BIS department of 8.8% a year, and should be able to pay interest of less than 5% to banks and other private sector lenders.

Last year Royal Mail's interest costs were £82m on drawn borrowings of £973m. So privatisation should save it perhaps £40m of interest payments per annum to the government.

Of course there is another way of looking at this - which is that the government, taxpayers, will be £82m a year poorer.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 580.

    Have to assume that selling off Public Assets has been an immense benefit to the General Public.
    Gas,Electricity.Water,Airports,Railways,Telecomms etc etc.
    Have to assume,that,prior to Privatisation all of the above were screwing us for every penny we had.
    If that is not true....Why were they sold?
    And why are we still being screwed?

  • rate this

    Comment number 579.

    The biggest threat to employees and public alike will be the private equity group that buys in to Royal Mail. Thousands of jobs will go and the prices will rise. Service will also suffer as they cut staff to increase profits. As an employee I can tell you that the staff are very worried about this.

  • rate this

    Comment number 578.


    Pathetic, what you have to say is truly pathetic - the REAL WORLD involves big business trampling all over individual workers...always has, always will in this pit of a country....

    ....put the customer first means letting the already obscenely rich owners screw wages to the floor & trash the economy for everyone too in the long run........YOU TOO & ALL YOUR FAMILY.......

  • rate this

    Comment number 577.

    I could go with the Union if they would agree legally binding arrangements under which all disagreements were settled by negotiation or arbitration with work not broken. So long as they claim to hold my post to ransom the Government should ignore them. Same with the rail unions. The user comes first above those working in the business.

  • rate this

    Comment number 576.

    Never fear. It will be just as successful as the privatisation of the railways...and just as dishonest.

  • rate this

    Comment number 575.

    If this privatization goes through small businesses in all parts of rural UK will be forced to close down, mine amongst them. Couriers are expensive and don't cover our areas, and new owners will cherry-pick the easiest and must remunerative routes leaving many parts of the UK without service. The loss of universal 6 day service will cost 1,000s of jobs and kill already ailing rural High Streets.

  • rate this

    Comment number 574.

    When the question "are you in favour of privatisation?" is asked, the questioner must not assume a "yes" means the answerer believes it will improve service.

    Sadly, in politics-of-envy UK, it is probably just that he wants to see the public sector employees lose a pension future, which would otherwise be better than his.

  • rate this

    Comment number 573.

    a privatised post office will end up owned by TNT or DHL so all these profits will end up abroad, the universal service will disappear and we'll be worse off ... AGAIN!!! Just like electricity, water, railways etc etc.

  • rate this

    Comment number 572.

    It will be interesting to see how many of Royal Mail's employees buy shares.

  • rate this

    Comment number 571.

    No551 Justin
    'the general taxpayer is subsidising'
    The general taxpayer, other than right-wing raving lunatics, know who is being subsidised.
    £450 billion to 'socially useless' bankers.
    Untold millions to inefficient farmers and 'corporate' run uneconomic farms.
    Massive grants from the public purse to corporations with their HQ's in tax havens.
    House of Lords canteen?

  • rate this

    Comment number 570.


    "Was Royal Mail privatisation in the Con-Dems Manifesto - No"


    No need. That nice man and lady, on the TV and radio, tell me I and everyone else are in favour of privatising everything in sight.

    They're wrong about me, I wonder as to how many others too?

  • rate this

    Comment number 569.

    Gas, electric, water vastly increased bills for us the general public to pay for fatcat chief executives shareholders . No chance a privatised Royal mail will make things cheaper for consumers looking at the above. It must be opposed..

  • rate this

    Comment number 568.

    How long before RM goes the way of the Dutch Post Office? Bought by TNT, most of the staff replaced by teenagers and low paid, and the one proud and admirable, second best (after RM) postal sevice in Europe reduced to rubbish.

  • rate this

    Comment number 567.

    566. bigmouth strikes again
    I never said 'rubbish' and was agreeing with you in regards to the timing of the sale. bigmouth strikes again
    ok - you said @536 "I am assuming that you have not analysed RM prices this year and recent historic profit..? Public investment and still service is below adequate for money spent on it"
    ..I assumed you were implying it would not sell well (none intended)

  • rate this

    Comment number 566.


    I never said 'rubbish' and was agreeing with you in regards to the timing of the sale

  • rate this

    Comment number 565.

    562. bigmouth strikes again
    Clearly it's not rubbish, because the Government is willing to put their credibility on the line by selling it now. It's you that thinks it's rubbish, so clearly you are at odds with the doctirne.
    Of course £3bn will make a massive dent in the £1.2tn
    I realise now that you think 'UK plc' is the Government, but as far as I know they have not sold themselves off yet

  • rate this

    Comment number 564.

    559.bigmouth strikes again
    7 Minutes ago
    We are invlolved because they have continued direct state subsidies.

    People are rather resigned as the government serve the interest of big business, expecially the wealth decimating finacial services and executive leeches, at the expense of the people.

    I don't want everything under state control - I do want the core public services to be.

  • rate this

    Comment number 563.

    558 stoneburner123
    "Robert Preston says that once Royal mail is privatized the taxpayer will be 82million in lost interest payments worse off. Surely this will be more than offset for by corporation tax on the huge profits it will make in years to come."

    Corporation Tax? "Royal Mail PLC - Registered Office, Some Tax Haven"

  • rate this

    Comment number 562.


    'If it is so rubbish, why sell it now? (clue: election tax break)'

    Probably. Will not disagree with that

    'UK plc is sitting on bundles of cash, actually'

    Really? Last time I checked public finances, there was not bundles of spare cash

  • rate this

    Comment number 561.

    558. stoneburner123
    Robert Preston says that once Royal mail is privatized the taxpayer will be 82million in lost interest payments worse off.
    Yep - it's goodbye longer-term Treasury revenue stream and hello short-term one-off pre-election tax-break promise for whichever section of the community looks like they might not vote the right way.
    Talk about 'transparency'.....


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