Nearly 30 years on, is Royal Mail sell-off the new BT?
As to be expected, the success of the sale of part of Royal Mail to the public resulted in claims from the opposition party that it was sold on the cheap.
Of course if the price had been too high and the allocation of shares was not taken up the sale would have been called a flop.
Interestingly soon after the shares were open to trading and the price shot up a number of fund managers said they felt the shares were good value up to £4 but above that they were over-priced, so the original offer price sounds about correct.
I have not seen however, a claim from the opposition party that the Government sold the family silver this time and this is primarily for two reasons. Firstly to sell Royal Mail the government had to keep the liability for the deficit of the pension scheme, which far outweighs the proceeds of sale. Secondly any comments about selling the family silver would only rebound on to Labour with a comment about selling the family gold. A reference to Gordon Brown's decision when chancellor to sell nearly half of the nation's gold reserves between 1999 and 2002 at a price between $256 and $296 an ounce.
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Will the successful sale of Royal Mail result in a flurry of other offers like those which followed the original privatisation BT?
The answer is not clear as for one thing what else is there to sell off and secondly the conditions are very different now to those of 1984.
Firstly then we had the Thatcher government and now we have a coalition. More interesting are the likely very different reasons for the original purchase of BT and now Royal Mail by both the public and fund managers. BT was seen as a good buy for capital growth, then the Bank of England base rate was 9.50% and within two months of the sale this had risen to 13.875%.
However, the inflation rate as measured against CPI was 5%. So savers could obtain a real return on cash savings, hence BT was bought for its growth potential.
Much of the comment about Royal Mail has been about the dividend, both for private investors and fund managers. This is hardly surprising with the Bank of England base rate still at a record low.
Another change which happened in the period between 1984 and now was the demise of the bank shares. These were always seen, especially by income fund managers as a safe, reliable source of dividends. So something like Royal Mail with the dividend potential is of great attraction.
How Royal Mail shares will perform in comparison with BT, bank shares or any other for that matter is of course unknown, but certainly history tells us not to put all our eggs in one basket.
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