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Cable negates UK lawmakers' criticism about Royal Mail IPO being undervalued

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(Credit: Reuters) The image is an ubiquitous red mail box of the Royal Mail Group.Royal Mail Group
November 27
11:39 AM 2013

As criticism from British lawmakers heat up regarding the pricing of the flotation of postal service Royal Mail, UK Business Secretary Vince Cable defended the decision to price shares for the postal service's IPO at 330 pence.

Providing evidence to the Business Committee of the British Parliament, Cable said the decision to price the shares of Royal Mail was based on the advice of its bankers. Its bankers, cable said, said that institutional investors will not support the IPO should the British government priced the shares at above 330 pence per share.

cable said, "It's quite possible that had we attempted to redo this to get that higher margin, the price could eventually have been lower. The whole thing could have failed."

Business Minister Michael Fallon, who, alongside cable, managed the flotation and presented evidence, said the Communication Workers Union threats to strike following the IPO have added to the uncertainty of the pricing of the shares.

Fallon said, "We could not have got a higher price for the 600 million shares we were selling. The taxpayer hasn't lost anything. It's too early to make that judgment."

According to both Cable and Fallon, analysts had a wide range of views regarding the value of Royal Mail, and that some projected that the shares would fall below its initial offering price.

Royal Mail said today its earnings for the first six months of the year almost doubled due to online retailers increasing parcel delivery activity. For the six months ended September 29, operating profit after costs still rose from GBP144 million last year to GBP283 million or USD459 million this year. Royal Mail also said sales increased 3.8% to GBP4.52 billion, with parcel deliveries accounting more than have of the postal services' total revenue.

Shares of Royal Mail rose after the results were released, trading at 569.5 pence at noon on the London Stock Exchange, which was a 7% increase on that day.

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