Royal Mail poised for flotation

SOME of the City's biggest investment banks are believed to have approached the Government to seek a mandate to privatise Royal Mail within the next year to 18 months.

It is understood that Richard Gillingwater, who heads the Shareholder Executive, which advises Whitehall on its role as owner of the company, has held meetings with top City bankers to discuss the sale of the business.

Chairman Allan Leighton, the former boss of Asda, has always said he would not oversee privatisation of Royal Mail.

But he steps down in March next year and investment banks believe that his transformation of the business, which looks set to generate profits of about £400m a year, will set the stage for a flotation that could net the Treasury billions of pounds.

It is understood that a sizeable minority of shares in a privatised Royal Mail would be offered to the company's 160,000 employees. As an additional sweetener, staff will be offered a bonus if Royal Mail hits the profit target. This could result in thousands of workers receiving up to £4,000 each.

Any move towards privatisation is likely to be resisted fiercely by the unions. However, bankers working on privatisation plans believe that owning shares in the company will make the prospect of privatisation more palatable for the vast majority of employees.

The transformation of Royal Mail - it has lost £1.8bn in the past two years - is likely to earn the company plaudits in Downing Street. City analysts believe that by this time next year, the Government will be left with a debt free organisation.

When Royal Mail started its modernisation programme two years ago, some 30,000 jobs were to be cut. It is understood that most of these will be achieved through natural wastage rather than the company running up a sizeable redundancy bill.

At the same time, the organisation has property assets that were valued a number of years ago at £2.5bn. Property analysts estimate that a sale-and-lease programme on these assets would realise at least £4bn.

But before Royal Mail can savour the success of a major corporate turnround, it has to confront the fact that standards are slipping fast.

Complaints have been rising, with fewer deliveries, millions of letters arriving late and a growing tide of union militancy in London.

Royal Mail faces a £50m fine for missing most quality targets and there are no signs of any improvement in standards.

The company acknowledges that there are serious problems, but by next month the reorganisation will be largely complete and there is a firm belief that standards will start to rise.