Royal Mail has
been privatised. Even after Margaret Thatcher’s frenzy in the 1980s, it was one
of the last UK public enterprises left; now, the coalition government has sold 52% of Royal Mail. Whereas
Thatcher’s push for privatisation was mainly driven by ideology, this latest
one was principally fueled by fiscal opportunism.
The sell-off was
a success, with the initial public offering eight times oversubscribed. But
postal services are not generally great business propositions these days and
the privatization of state-owned operators is the exception, not the rule.
So what exactly
is it that makes Royal Mail such an attractive investment? Here’s a hint – it’s
not delivering letters or parcels.
Privatisation
elsewhere
The
first privatized national postal operator in the world – and the only fully privatized one – is the Dutch postal service, whose transition to a private
entity is a complicated story. The then-joint Dutch Post and Telecom Service
(called KPN) was floated on the stock market in 1994; in 1996,
it bought the private Australian integrator TNT in a friendly
takeover. The service was then separated into Post and Telecom in 1998. Post
was still majority-owned by the Dutch government; it was renamed TPG in 1998,
then re-branded as TNT in 2005 and fully privatized in 2006.
But
despite its early mover advantage, the postal business was not a success for
TNT. Its shareholders first decided to sell the parcels unit, then split the
remaining company into TNT (international express) and NLPost (national mail
service) in 2011.
This
extended privatizing process has been a disaster. The Dutch have been forced to
accept numerous concessions in the provision of postal outlets, frequency of
delivery and more besides in order to have a national postal service at all.
By
comparison, the privatization of the German service has been far more
successful. In 1989, the old Deutsche Bundes Post was split into three separate
companies: Postal service, Telecoms and the Postal Bank. While Deutsche Telekom
and Postbank were privatized Deutsche Post remained in government ownership.
Substantially helped by the German government, it used hidden subsidies to go
on a global shopping spree, especially in Eastern Europe. In 1998 it began
acquiring the parcels operator DHL, gaining majority ownership in 2001.
The
government gradually sold off its shares in Deutsche Post, and by 2005 the
majority were in private hands. Today, the German government holds
approximately 30% of the company. Thanks to continued government support and
its global acquisitions, the partially privatized Deutsche Post DHL has become
the world’s biggest and most successful logistics operator.
Yet
the successful partial privatization of Deutsche Post / DHL can not be
replicated, neither by Royal Mail nor by anyone else – and few countries have
even tried in earnest. Japan Post, despite numerous announcements, has yet
to sell a single share after years of political squabbling; Singapore Post,
the “fully privatized postal operator, remains owned by the government’s
sovereign fund.
In
fact, beyond Germany, there are only two real examples of partial privatization Austria Post and Belgian Post (called bPost). However, both are
still majority owned by their respective governments, which remain wary of
letting fully privatized operators run their services.
Decline
and fall?
Privatization pays off: Deutsche Post DHL is
the world’s largest parcels courier.
The future for postal operators worldwide does not look good. Traditional
letter mail is being replaced by electronic mail at annual rates ranging
from 2%-3% (on average in Europe) to up to 10% (Scandinavia); in
2012, the US Postal Service (USPS) ran a record deficit of $15.9 billion (£10
billion).
And
even though the parcel market is still growing thanks to electronic commerce,
few national postal operators are actually capable of taking advantage of this
opportunity. The parcel business is truly global, but it primarily benefits big
multinationals - among them DHL (Germany), Fedex (USA), UPS (USA) and DPD
(France) - and not national operators.
So
at a time like this, and given postal privatization's very chequered history,
why was the privatization of Royal Mail such a success for investors? The
answer may actually be quite simple: like any long-established postal operator,
Royal Mail owns a great deal of real estate in prime city centre locations.
Assets like these can easily be sold off now that the mail business is
declining and local customers rarely visit a post office.
So
the success of the Royal Mail sell-off might simply be another indicator -
albeit a rather paradoxical one - of traditional mail’s apparently terminal
decline.
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