Royal Mail privatisation... Would you?

Vince Cable said on Wednesday there had been 700,000 individual retail applications for Royal Mail shares – which were seven times oversubscribed – and was confident they had been “priced in the right place”.
Asked about the likely premium when the shares start trading on Friday, the business secretary said people should look beyond the immediate “froth” that will arise.
“We are interested in getting a privatised institution over a period of years,” he told the Commons select committee examining the sale.
He added that broker Panmure Gordon’s view that Royal Mail was worth £4.5bn was “way outside the estimates of most of the equity analysts”.
The flotation is set to become one of the most sought-after state sell-offs since the privatisation of British Telecom and British Gas in the 1980s following huge investor demand that left the offer heavily subscribed at its close on Tuesday night.
Despite the threat of strikes by postal workers and criticism by Labour that taxpayers are being short-changed, the coalition is close to selling a majority stake in the near 500-year-old Royal Mail – the fourth attempt to privatise it in 20 years.
The coalition is selling up to 60 per cent of the company in the most ambitious privatisation since the railways in the 1990s.
The offer is likely to be priced at or close to the top of the 300p-330p range, valuing the state-owned postal operator at £3.3bn. Brokers expect the stock to open at a premium when conditional trading begins on Friday.
Institutional investors that placed orders for Royal Mail shares at less than 330p risked missing out amid strong demand, bankers for the sale warned.
They told the market that the initial public offering was significantly oversubscribed and many institutional investors that applied for stock at a lower price may not get any allotment.
The IPO closed to institutional investors at 5pm on Tuesday. Brokers said there had been “unprecedented” demand from private investors, who had until midnight to apply.
Whitehall officials declined to confirm reports that institutions had placed orders for more than £30bn of shares.
Such a figure had little meaning because institutions, realising demand was heavy, had ramped up orders in the hope of winning just a proportion of them, they said.

Michael Fallon, business minister, sought to reassure retail investors that they would get their “get their fair share”. That is likely to mean that when allocations are decided, no one who has applied for shares will receive less than the minimum application level of £750.
Mr Fallon’s remarks came amid fears that smaller buyers will be sidelined by City banks and hedge funds, which will get around 70 per cent of the shares being sold.
The grey market price offered by IG Index, a spread betting firm, fell back to 380p-400p after profit-taking, compared with 396p-416p on Monday.

Alastair McCaig, IG market analyst, said a premium was likely because institutions will not have been able to get all the stock they want, though it might be “a touch optimistic” to think the price will go above 400p.
The final price and allocations will be announced on Friday, after ministers have assessed demand. Full trading will start on October 15, when all retail investors will be able to sell.
The government has said it will sell between 40.1 per cent and 52.2 per cent, plus another 7.8 per cent if demand is high.
Only 368 Royal Mail’s 150,000 workers have declined the offer of free shares in the company. Ministers reserved 10 per cent of the shares for staff.
The low level of opt-outs means that 99.75 per cent of workers have decided to accept shares despite the industrial action ballot being conducted by the Communication Workers Union.

oftm wrote: »

Hopefully they don't get anything.

Why?

Is it because those that signed up initially weren't doing it for the potential returns but out of love for Royal Mail which they desperately wanted to own a little piece of? Of course only those that applied near the deadline were the horrible profiteering dregs of society.......

So the offer is for the sale of between 401,000,000 and 521,739,130 shares (excluding the free employee shares).

Of these 30% comes under the retail offer and 70% under the institututional offer.

So that is between 120,300,000 and 156,522,000 shares to retail investors (30% of these amounts).

If 700,000 retail investors have each applied, and if they are each allocated £750 worth of shares i.e. 227.2727 shares each (=£750/3.30) then that would require 159,090,909 shares to be issued at £3.30 (=700,000 x 227.2727).

That is just above the upper level above of 156,522,000 shares.

So you could perhaps expect every retail investor to be issued £750 worth of shares (through using part of the over-allotment arrangement 'bank' of 78,260,870 shares).

And if the whole 'over-allotment' amount is allocated to retail investors, which is a big if, then there would be 234,783,000 shares available (=156,522,000 + 78,261,000). That would leave 75,692,000 shares available (=234,783,000 - 159,091,000) to allocate to retail investors who had applied for more than £750 worth of shares. Or an extra £249,784,000 in monetary terms to be shared out amongst those of the 700,000 who had applied for more than £750 worth of shares.

That is from a quick look. Please correct me if my numbers or logic are wrong, which they well could be.

(source Royal Mail Summary prospectus in particular see B6 and E1)

latecomer wrote: »

Why?

Is it because those that signed up initially weren't doing it for the potential returns but out of love for Royal Mail which they desperately wanted to own a little piece of? Of course only those that applied near the deadline were the horrible profiteering dregs of society.......

It should be first come first served. Most of the latecomers are only buying because of all the hype the last couple of days. They should be last in the queue.