Royal Mail share price down, UK government sells half of remaining stake for £750 million

The British government said it raised £750 million ($1.2 billion) from the sale of half of its 30% stake in ex fully-state-owned postal operator Royal Mail Plc, adding that it sees no reason to keep any holding in the company.

Banks led by Goldman Sachs, JPMorgan and Bank of America placed this week around 150 million Royal Mail state-owned shares with institutional investors at 500 pence apiece. The 500-year-old company was privatized in 2013 in an IPO strongly criticized by trade unions and opposition politicians as the sale price of 330 pence back then significantly undervalued the company, they said, which was followed by a jump to about 600 pence in early 2014.

The sale comes as part of Prime Minister David Camerons pre-election pledge to reduce the nations debt that has more than doubled since the financial crisis to 80% of GDP. It “represents good value for taxpayers”, according to Business Secretary Sajid Javid.

“Royal Mail has demonstrated that it can thrive in the private sector,” Javid said. “It now has the ability to access the funds it needs to ensure that it has a sustainable future and can adapt to the changes in the postal market.”

Employees, who received 10% of Royal Mail shares in 2013 when the privatization began, will be awarded up to 1% of the share in the latest transaction. The governments remaining 15% holding in the postal operator cannot be sold within the next 90 days, but a planned sale of its entire stake in the firm is due by the end of the year, Finance Minister George Osborne said last week.

The governments exit from Royal Mail complements plans to dispose holdings in banks it bailed out during the financial crisis, including the sale of a 19% stake in Lloyds Banking Group and the 79% stake in Royal Bank of Scotland.

Royal Mail announced on June 3rd that Peter Long, current joint CEO of holiday operator TUI AG, will join the British companys board as a non-executive director on June 18th 2015 and will succeed Donald Brydon as chairman on September 1st.

The directorate change comes in a difficult year for Royal Mail as it battles tougher competition at its UK parcel delivery business, mainly from Amazon.com Inc, and as letter volumes continue to decline at an annual pace of 4-6% as people switch to e-mails. The company reported a pre-tax profit of £400 million in the fiscal year ended March 30th, a sharp drop from £1.7 billion a year earlier, which, however, was mainly due to a large one-off pension benefit in 2013-2014.

Royal Mail Plc traded 4.03% lower at GBX 495.70 per share at 09:48 GMT in London, marking a one-year drop of 0.8%. The company is valued 5.17 billion pounds. The 16 analysts offering 12-month price targets for Royal Mail Plc have a median target of GBX 490.00, with a high estimate of GBX 625.00 and a low estimate of GBX 360.00. The median estimate represents a 5.13% decrease from the previous close of GBX 516.50.