British Watchdog Says Royal Mail Sale Did Not Achieve Best Value

LONDON - The British government took a cautious approach in pricing the initial public offering of Royal Mail and thus failed to get the best deal for the taxpayer, the National Audit Office said on Tuesday.

In its report, the N.A.O., a public spending watchdog agency, said the considered approach by the Department for Business, Innovation and Skills, designed to complete the sale and avoid delays because of market uncertainty, resulted in shares being priced “at a level substantially below that at which they started trading.”

Shares of Royal Mail, the operator of Britain’s postal service, jumped 38 percent on the first day of trading in October and were trading about 71 percent above its I.P.O. on Tuesday morning.

“The department was very keen to achieve its objective of selling Royal Mail, and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer,” Amyas Morse, head of the audit office, said in a statement. “The government retained 30 percent of the company. It could have retained even more and allowed the taxpayer to participate further in the rapidly increasing share price and thus limit the cost of to the taxpayer of its cautious approach.”

The agency’s report is likely to add fuel to accusations by members of the opposition Labour Party and the postal union that the government sold the Royal Mail at too low a price.

The government raised 1.98 billion pounds, or about $3.3 billion, in the I.P.O. in October, which was 24 times oversubscribed. The government gave a 10 percent stake to the Royal Mail’s employees and retained a 30 percent stake, which is now valued at about £1.7 billion.

The public offering was priced at 330 pence per share. Shares of Royal Mail were trading up slightly at 565 pence in London at midday on Tuesday.

The N.A.O. noted that, following substantial intervention by the Department for Business, Innovation and Skills, Royal Mail is now a profitable commercial business with access to private capital. It is now less likely that the taxpayer will have to provide public support for the universal postal service, the auditor said.

Vince Cable, the British business secretary, defended the sale and said the government had achieved its goals in the Royal Mail privatization.

“Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale,” Mr. Cable said in a statement on Tuesday. “The report concludes there was a real risk of a failed sale attached to pushing the price too high. And a failed sale would have been the worst outcome for taxpayers and jeopardized the operation of Royal Mail going forward.”

The sale price for Royal Mail was set after a process of engagement with more than 500 institutions, taking into account the company’s industrial relations, market conditions at the time and a professional assessment of Royal Mail’s market value, the Department for Business, Innovation and Skills said.