Britain Just Privatized Its Mail Service at a $1 Billion Discount

The largest initial public offering in Europe in more than two years could have been even larger. The privatization of the Royal Mail, in which around two-thirds of the company’s shares began trading Friday morning, raised £1.7 billion ($2.7 billion) for the government.

Frenzied trading pushed the Royal Mail’s shares up by nearly 40% within minutes of the opening bell. This followed enormous demand for the initial allocation of shares, with the retail portion of the offering oversubscribed by seven times and institutional investors bidding for 20 times as many shares as they were allowed.

The pop in the share price immediately revived criticism that the government was flogging the 500-year-old company far too cheaply. The gap between offering price and the current share price, if it holds, implies that the government underpriced the sale by roughly £660m, or just over $1 billion. Read more...