Royal Mail Privatisation - Business, Innovation and Skills Committee Contents


4  Priority Investors

53. A key objective highlighted by the Secretary of State was to ensure that Royal Mail would be owned by long term investors. In October 2013, he told us that he was working to ensure that this was achieved:

    We are talking about pension funds and insurance companies that hold the savings of millions of people, and we have been very clear that that is the kind of relationship we want to have; that is long-termism. That is what the Kay Report was all about; those are the institutions we were talking about. That is where the investment will go.[59]

54. These companies were described by the Secretary of State as "long-term institutional investors who will help the Mail through a long period of adjustment and hopefully successful business",[60] rather than "some fly-by-night operator who wants a quick buck".[61] William Rucker, from the Shareholder Executive expanded on the type of investor that the Government was looking for:

    They are a mixture of different types of investors, but they were all people we categorise as long-term investors. Those were people who were prepared to see this company through what could have been a troublesome time in the event of a strike or other actions.[62]

55. James Robertson from UBS set out its role in attracting such investors:

    It was an objective of the Shareholder Executive to make sure that we placed the stock in the hands of long­term blue­chip investors who understood the company well and would be supportive of future sell­downs to maximise value there, not necessarily just to provide stock to people who might sell it to provide liquidity afterwards".[63]

He went on to assert that the investors who received shares from the Glocos were "exactly the sorts of long­term blue­chip investors the company should be very pleased to have on their shareholder register".[64] However, as the NAO Report pointed out, of the 20 largest shareholders at the date of the IPO:

—  four had increased their stake, of which two had doubled their stake;

—  seven had sold all of their allocated shares; and

—  four had reduced their stake by over half.[65]

56. By the end of January 2014, six priority investors remained among the largest shareholders. Looking at the overall shareholding of the priority investors, the NAO found that:

    In aggregate, [the original priority] shareholders held 12 per cent of the shares outstanding, just over half the 22 per cent allocated to the 16 priority investors at IPO". [66]

57. Despite the ambition of the Secretary of State for long-termism, a significant proportion of the investors identified as being long term sold shortly after flotation. According to the NAO, the Department considered the possibility of seeking binding agreements from a group of 'cornerstone' investors but rejected this because it would have reduced the sale price of the shares.[67] Mr Rucker explained:

    If you ask an investor to lock themselves up for a lengthy period of time, there is likely to be a consequence in terms of the price it is willing to pay for the share.[68]

58. The Secretary of State said that the investors "did not have to pass some kind of exam to qualify and they certainly did not have to sign any kind of contractual agreement" in order to be a priority investor.[69] Mr Fallon put the status of the agreement between the investors and the Government in more stark terms:

    There was no agreement—gentleman's or otherwise—on the holding of Royal Mail shares by priority investors.[70]

59. During our evidence sessions we asked our witnesses to identify the priority investors. However, at the time, the Secretary of State refused to name them. When pressed, he said that he was "given legal advice to respect commercial confidentiality, and the corollary of that is we would be sued if we did not".[71] The Secretary of State told us that the investors were asked if they were willing have their identities divulged but that they wanted their commercial confidentiality to be respected.[72] Despite this position, the Secretary of State published the list the following day.

60. The list of these investors was published by the Department the next day , and shortly after, the Department published the investors initial share allocations:
Institution
Allocation no.

of shares
Allocation % of shares in the company
Threadneedle Asset Management Ltd
19,500,000
1.95%
BlackRock Investment Management (UK) Ltd
19,250,000
1.93%
GIC Private Ltd
19,000,000
1.90%
Lansdowne Partners
19,000,000
1.90%
Capital Research Global Investors
17,500,000
1.75%
Fidelity Worldwide
17,500,000
1.75%
Abu Dhabi Investment Authority
16,000,000
1.60%
Kuwait Investment Office
16,000,000
1.60%
Schroders
13,500,000
1.35%
Standard Life
13,500,000
1.35%
Och Ziff Capital Management
12,000,000
1.20%
Henderson Global Investors
10,000,000
1.00%
Soros Fund Management
10,000,000
1.00%
JP Morgan Asset Management
6,750,000
0.68%
Lazard Asset Management
6,000,000
0.60%
Third Point
5,000,000
0.50%
Shareholding total
220,500,000
22.05%[73]

61. In its Report, the NAO found that by October 2013, four of the investors had increased their stake, (of which two had doubled); but that seven had sold all of their allocated shares; and a further four had reduced their stake by over half (see below):

62. Unfortunately, matching the NAO list to the Government's list is not straight forward and in the time available to us we have not been able to identify which companies sold most or all of their shares.

63. We agree that it is sensible to identify, in advance, companies which are committed to investing in an IPO. However, we fail to see the benefit to the taxpayer of embarking on a policy of identifying long-term investors without either a criterion on which to judge them or any undertaking given by investors to support Royal Mail in the medium or long-term. The current ownership of Royal Mail by long-term investors has little to do with Secretary of State's actions. Unlike those preferred investors who bought cheaply and sold quickly at a profit, if the current investors are long-term, many of them may have bought at a price far higher than the one set by the Government.

64. We welcome publication of the list of priority investors. However, we are disappointed with the handling of this by the Secretary of State. Twenty-four hours before publication, the Secretary of State told us that such action would result in legal action against his department. We find the speed of this U-turn surprising.

65. The Government's publication of the names and allocations of the preferred investors only provides one part of the picture. We recommend that the Government update that list to include information on which investors sold their shareholding, when they sold and the share price of Royal Mail at that time.


59   Q3 Back

60   Q2  Back

61   Q84 Back

62   Q313 Back

63   Q151 Back

64   Q152 Back

65   National Audit Office, The Privatisation of Royal Mail, HC (2013-14) 1182, page 45, para 4.18 Back

66   National Audit Office, The Privatisation of Royal Mail, HC (2013-14) 1182, page 45, para 4.19 Back

67   National Audit Office, The Privatisation of Royal Mail, HC (2013-14) 1182, page 36, para 3.29 Back

68   Q490 Back

69   Q499 Back

70   HC DEB 29 Apr 2014 : Column 629W Back

71   Q520 Back

72   Q526 Back

73   Ev 77 Back


 
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Prepared 11 July 2014