e-commerce key to Royal Mail IPO

The British Government has announced that it intends to proceed with the privatisation of the Royal Mail Group “in the coming weeks”. Whilst it has not yet decided on the exact amount of the company it wants to sell, it is understood that it will be a majority share and analysts expect it to be valued at about £3bn. As part of the initial public offering, 10% of shares will be distributed among the company’s employees for free.

Ministers have stated that private investment is necessary because of the need to raise capital to continue the transformation of the company as letter volumes decline and its parcels business grows. Royal Mail’s European parcels unit GLS will be sold along with the company’s UK operations, although the Post Office Ltd retail network will remain a wholly state-owned entity.

The floatation of Royal Mail on the London Stock Exchange will be the largest government sell-off since the railways in the 1990s.

Head of Consulting, Joel Ray, commented: ‘Although this move has been expected for some time, the continued growth in e-commerce has created an attractive environment for the sale of Royal Mail. Our own research has shown that the home delivery market is growing at 7% per year with Royal Mail and Parcelforce controlling a 46% share.’

Despite this strong position, there are several unresolved issues which, according to Ray need answering. ‘The relationship which Royal Mail has with the Post Office network needs clarification. I would be very surprised if competitors will not be allowed access to this hugely valuable asset at a comparable rate due to competition laws. This could possibly reduce any competitive advantage held by Royal Mail.’