Royal Mail’s $5.3 Billion IPO Said to Be Fully Subscribed

Royal Mail Group Ltd. has buyers for all shares to be sold in an initial public offering valuing the 360-year-old U.K. postal service at as much as 3.3 billion pounds ($5.3 billion), two people briefed on the matter said.

The sale began today and was fully subscribed within hours, mainly on demand from institutions, according to the people, who asked not to be named because an update on the fundraising was sent only to investors. Royal Mail shares, open to applications until Oct. 8 before trading commences on Oct. 11, will be priced at 260 pence to 330 pence apiece, according to a statement.

The Royal Mail selloff will be the biggest privatization in the U.K. since former Prime Minister John Major broke up British Rail in the 1990s. The volume of IPOs in Europe has tripled in the year-to-date versus 2012, data compiled by Bloomberg show, as investors are drawn by strengthening economies in the region.

"We are encouraged by the interest shown by potential investors so far," Business Secretary Vince Cable said in the government statement. "This will give Royal Mail access to the private capital it needs to modernize."

Royal Mail, which is based in London, will have a market capitalization of between 2.6 billion pounds and 3.3 billion pounds once listed, with 401 million to 522 million shares due to be sold, equating to as much as 52.2 percent of its capital.

Government Stake

The future of the remaining state shareholding will be determined later, Minister for Business and Enterprise Michael Fallon told Bloomberg Television today. Postal services "aren't businesses that sit naturally in the public sector," he said, adding: "Its future lies in the private sector."

The U.K. government wouldn't be able to block a foreign takeover of Royal Mail once the shares are traded, Fallon said, while adding that the company will have access to capital needed to expand internationally as other nations open postal markets.

Royal Mail has a 53 percent share of U.K. parcel deliveries and reported revenue of about 9.1 billion pounds in fiscal 2013. Its operating profit, after some costs, was 440 million pounds.

One of the country's largest employers with more than 150,000 staff, Royal Mail has shifted away from letters to more lucrative package shipping, competing with TNT Express NV (TNTE) of the Netherlands and Deutsche Post AG (DPW)'s DHL Express.

The government, which decided in 2011 to privatize Royal Mail, will retain between 37.8 and 49.9 percent of stock, assuming no over-allotment options. A further 15 percent of shares may be made available beyond the base offer, it said.

Strike Poll

The government expects about 70 percent of the base offer to go to institutional investors and the rest to retail buyers and Royal Mail workers. The minimum application for the retail offer is 750 pounds of stock, or 500 pounds for employees.

Staff, some of whom plan to strike over the sale, will also be handed a total of 10 percent of the shares for free out of the government holding, valued at as much as 331 million pounds.

The Communications Workers Union said in a statement that the IPO is driven by "political dogma" and that Royal Mail can be profitable and successful under public ownership. A strike ballot closes Oct. 16, with walkouts possible from Oct. 23.

Britain's opposition Labour Party said today Royal Mail is being sold so ministers "can raise a quick buck" amid concern about the possible impact on local communities, adding that privatizing such a profitable business "makes no sense."

Bookrunners for the sale are Goldman Sachs Group Inc., UBS AG (UBSN), Barclays Plc (BARC) and Merrill Lynch & Co., with Investec Ltd., Nomura Bank International Plc and RBC Europe Ltd. lead managers, said the government, which is being advised by Lazard Ltd. (LAZ)

Royal Mail will have an implied dividend yield of 6.1 to 7.7 percent of its initial market value for the year ending March 31, with a notional full-year dividend of 200 million pounds, the statement said. For the period in which the shares will actually be traded the payment will be 133 million pounds.