Going Publicly Postal: U.K.'s Royal Mail Considers IPO
NEW YORK (TheStreet) -- The U.S. Post Office has long been the butt of jokes for inefficiency, and in the last few years, it has been the focal point of a more serious discussion about whether, after losing $15 billion and considering a reduction of service, it should be privatized.
While those discussions haven't made much progress in the U.S., they have in other countries, most recently in the U.K., where yesterday it was announced that the Royal Mail could be privatized through an initial stock offering in April 2014.
Royal Mail wouldn't be the first publicly traded post office. Last month, Belgium floated its mail service, the BPOST, which the Wall Street Journal reports will yield 7% once it commences dividends. Deutsche Post (DPSGY) in Germany has been publicly traded since 2000.
Despite perceptions of no growth and huge pension liabilities, Royal Mail will have a bullish case should it start trading. Its profit and free cash flow doubled in the last year thanks to new automated sorting technology and the closing of 30 facilities.Parcel volume rose 13% growth in the last year, although over the last 10 years, total volume has declined 25%. In 2009, the U.K. government absorbed most of the Royal Mail's pension obligations, which should neutralize that threat, at least for now. Selling the post office is not without controversy, however, and so the transaction may fail to materialize. Customers are concerned whether a private Royal Mail will have the same "universal service obligation" to deliver the mail, and employees are concerned that their pay and benefits would be cut. These are valid issues as future shareholders would expect profit growth. The U.K. has a history of privatizations, including several utilities, British Airways (BAIRY), airports and railroads. The sale of Royal Mail could bring in 3 billion British pounds. That could be used to reduce the debt, albeit only slightly, or for other purposes. Still, Royal Mail is an an asset with value, and the promise of being able to sell an asset can be just as beneficial as actually selling the asset.
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