Liberal Democrat Councillor for the East Marsh Learn more
by Steve Beasant on 18 December, 2014
A comprehensive review of how government should conduct stock market Initial Public Offerings (IPOs) has been published today (18 December 2014).
The review, commissioned by Business Secretary Vince Cable, was led by former City Minister Lord Myners, supported by an expert panel from the financial sector and academia.
The report looked at the central recommendations to come out of the National Audit Office’s report in April 2014 into the Royal Mail sale, which raised questions around the framework government currently operates under when divesting its assets via an IPO. It also looked at alternatives to the conventional book building process to inform future stock market sales more generally.
Business Secretary Vince Cable said:
“I am very grateful to Lord Myners and his expert panel for this important and insightful report. It contains a number of significant proposals which could make the general process of future sales more transparent. I would encourage financial regulators and those bringing companies to market to engage in this debate. In particular they should explore how digital auctions could, in certain circumstances, make the sale process much more flexible.
“I also welcome his comment that the sale was executed with considerable professionalism and that any decision to try to have priced the shares higher would have been risky. We were right not to take that risk.”
The panel’s main proposals which challenge the existing way United Kingdom markets work in general include:
After studying the process adopted during the Royal Mail sale, the panel recommended that before any future primary share sale by government there should be:
Lord Myners said:
“This is a seminal piece of work which has the potential to fundamentally alter the way companies are floated on the UK stock market and I look forward to seeing how this develops.
“I regard the Royal Mail privatisation to have been a complex exercise executed with considerable professionalism. Many previous governments attempted to sell but failed. The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process. There were also some inherent complexities built into the transaction, such as a generous retail offer, which added to this caution. The government adopted conventional standard market practices built up over time.
“We found no evidence to challenge the general assertion that an IPO price greater than 350 to 360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made.
“We do not believe that a price anywhere near the levels seen in the aftermarket could have been achieved at listing. The aftermarket conditions were extraordinary, unpredictable and did not reflect significant value “left on the table” as some concluded at the time. The government and taxpayer achieved significant value.”
The report also concluded that:
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