UK
11/12/2013 10:30 GMT | Updated 11/12/2013 10:37 GMT

Royal Mail Nears FTSE 100 As Vince Cable Defends Cheap Sale

ASSOCIATED PRESS
A post office worker walks byt Royal Mail vans at London's latest sorting office Mount Pleasant, Thursday, Sept. 12, 2013. The U.K. coalition government has confirmed plans to privatize the country's 500-year-old Royal Mail this fall. Business Secretary Vince Cable said Thursday an initial public offering of a majority stake in the postal service was scheduled for the coming weeks. (AP Photo/Alastair Grant)

Royal Mail's six-day-a-week postal service would have been threatened if coalition ministers had tried to sell the business off at a greater share price as it would fall into the hands of "short term hedge funds", Vince Cable has warned.

The Business Secretary made a robust defence of the government's handling of the Royal Mail stock market flotation as it is expected the Royal Mail will today join the 100 biggest publicly-listed companies, which would see it ranked alongside major names like BP and Marks & Spencer.

Critics have accused the government of selling Royal Mail "on the cheap" after the share price shot up from its initial £3.30p valuation once trading started.. This morning, shares opened at £5.91, marking a rise of 80% from its original valuation. Cable has so far dismissed suggestions Royal Mail was undersold as "froth".

The Business Secretary said the government aimed to make sure Royal Mail would be in the hands of long-term investors who would not put the universal service obligation, which guarantees the six-day service in law, at risk.

He told the Daily Mail: "‘We wanted to make sure that the company started its new life with a core of high quality investors who would be there in good times and bad, interested in Royal Mail and the universal service it provides for consumers over the long term.

"We were told if we sought a higher price, these investors would have walked away, leaving the company exposed to short term hedge funds with different objectives."

MPs have expressed concern about the banks' role in advising on the best pricing for the Royal Mail, with business committee chair Adrian Bailey comparing the involvement of Goldman Sachs to the Great Train Robber Ronnie Biggs.

Goldman Sachs and UBS had valued Royal Mail at £3.3 billion, while its rival JP Morgan valued it as high as £8.5 billion. Goldman Sachs later made £12 million after selling Royal Mail shares at the top of the market.

Labour's shadow business secretary Chuka Umunna said: "The Government floated Royal Mail for 330p per share - it opened today at 591p. Two months on, they still have serious questions to answer."