The government this week announced its plans to privatise the Royal Mail, the distribution business that supplies the Post Office, by selling shares to investors, rather than finding a large private sector buyer to purchase the company. For those with nostalgia for the 1980s, the sell-off evokes memories of the famous "Tell Sid" adverts that convinced millions of people to successfully invest in the British Gas floatation. There are obvious parallels, and the Royal Mail has worked hard in recent years to shed its "Postman Pat" image to become a genuinely competitive international business.
But the most obvious difference with the original utility sell-offs is that the Royal Mail float is likely to be far less high profile than the advertising-led 1980's versions. There will be a website where applications for shares can be logged, but large-scale advertising has been ruled out. Secondly, retail investors are also likely to be more wary of these types of privatisations as there have been some notable failures, think Railtrack, as well as considerable successes. The other unanswered question is whether there will be enough liquidity to interest smaller investors - if there isn't then large institutions could simply sit on large blocks of shares.
There is also the company's truculent unions to consider, which are vehemently opposed to the IPO, despite the offer of 10 per cent worker ownership of the company for free, and the certainty that large-scale capital investment will be needed to bring its technology up to scratch. At least the government has decided that it will not retain a so-called "golden share" that could be used to block takeovers or influence management decisions.
On the positive side, becoming an international distribution and logistics business that can handle the vast volumes of parcel traffic that internet shopping is generating is a definite opportunity for Royal Mail. Similar companies like DHL and UPS are highly profitable and, if private ownership boosts its efficiency, shareholders could see positive long-term returns if they buy in from the start.
