Yes, Of Course Royal Mail Was Sold Too Cheap But Not For The Reason You Think
WAS Royal Mail sold on the cheap? Yes. But not for the reason you might think.
When they announced that they were going to privatise Royal Mail there were all sorts of shrieks and moans that this would just put cash into the pockets of the hedge funds. You know, the fly by night boys just looking for a quick turn on tyhe shares. And of course that’s not what the government wanted at all: rather, we want stable long term investors who will be with the company for years.
So, when the hedge funds all applied for shares in the share offering they were told to naff off. Or allocated very many fewer than they had asked for:
TCI, for its part, applied for
a whole presidential suite of rooms£200m of shares and was allocated just £1m. Many other hedge funds were similarly shunned.
OK, so what? We’re not exactly going to cry for hedgies, are we?
Well, you see, the thing is, that hedge fund has now bought a whole shedload of Royal Mail shares. 6% of the entire company in fact. And it paid very much more than the flotation price to buy them as well. And where did the shares it bought come from?
Who is it that have been selling to hedge funds in recent days, flipping their IPO allocations for quick, ruthless profits with no regard as to the fundamentals of RMG’s business, but a keen eye for their own returns? Yes! “Long term” long-only investors, of course!
And that’s why Royal Mail was sold too cheaply. Because the idiot government decided that it wouldn’t sell to hte hedge funds. Thus there was a whole swathes of likely buyers locked out of the auction and when you do that you will obviously get lower prices than if you let everyone bid.