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.
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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
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