The Royal Mail privatisation row reached new heights Friday on news that ahead of its flotation 21 City institutions valued the company across a range of £4bn to £4.8bn, up to £1.5bn more than the £3.3bn the business was sold for by the government
On the face of it, the new valuation figures, released by the business department, promise to provide further ammunition to those accusing the government of having very badly mishandled the sale of 60% of its stake in Royal Mail to the market last October. Labour has been very keen to push the view that taxpayers have lost out to the tune of hundreds of millions of pounds because the company was sold too cheaply.
Royal Mail's share price mid-afternoon Friday stood at 588p, up 2.5p on the day, valuing the company at £5.88bn, amounting to a whopping 79% premium to the offer price of 330p. The hefty appreciation can only help sustain the attack from critics.
The rocket-fuelled progress of the shares
to date is proving a little uncomfortable for business secretary Vince Cable in particular. He it was who told MPs just before the flotation that the shares would need time to lose their post-privatisation "froth". To be sure, the price may well moderate over the next few months but for the time being, Cable might well be regretting such a confident prognosis.
In the wake of the details of the 21 valuations being released, Labour was quick to renew its attack. Chuka Umunna, Labour's shadow business secretary - who obtained the figures under a freedom of information request - told the FT that the government's "failure to get a fair price for Royal Mail has left taxpayers short-changed".
But Michael Fallon, the business minister, responded well, pointing out that the 21 banks who made these early valuations have stressed that they cannot be compared with those reached at the end of any sale process. It's a fair point from Fallon and the banks and a fact of life with IPOs as they move through initial formulation and "virtual" valuation through to final valuation, book building and flotation.
It is also a mistake to assume that prospective flotations can be somehow isolated from evolving developments within and without the company as it heads towards to market. It's a point that Goldman Sachs and UBS, the investment banks that advised on the sale, impressed upon MPs on the business select committee when they carried out a probe into the IPO last October. The two banks reminded the MPs that the Royal Mail flotation took place against a backdrop of jittery financial markets due to worries about a US debt default. The threat of a nationwide strike also loomed over Royal Mail at the time.
An eventual flotation price of 330p was settled on by the ministers and advisers after the two banks warned them it was the maximum institutional investors were prepared to cough up.
The valuations revealed today are uncomfortable for government but more difficulties for ministers lie ahead. For within the next few weeks the Commons business select committee is expected to publish a report criticising the sale process. The National Audit Office is also flexing its muscles over the matter. Clearly the Queen's head saga has some way to run yet.