Rain drops fall on a Royal Mail van outside it's Bethnal Green sorting office in east London
By Neil Maidment
LONDON (Reuters) - Britain embarked on its largest privatisation in decades on Thursday as the government unveiled plans to sell the majority of the near 500-year-old state-owned Royal Mail postal service.
The Department for Business said a stock market flotation, fiercely opposed by unions, would take place in coming weeks, giving the public a chance to buy into the company. In the largest giveaway of any major UK privatisation, 10 percent of the shares will go to Royal Mail staff.
It said the size of the sale would depend on market conditions, although it intends to dispose of a majority stake. Analysts say the float could value Royal Mail, whose roots go back to a service founded by King Henry VIII in 1516, at between 2 and 3 billion pounds.
The sale would be one of the most significant privatisations in Britain since John Major's Conservative government sold the railways in the 1990s. Major's predecessor Margaret Thatcher had pioneered state selloffs but stopped short of the Royal Mail because of its potential controversy.
Business Minister Michael Fallon, who is heading up the sale of Britain's leading postal provider, said there was sufficient investor demand to push the button on the float and dismissed the chances of a possible postal strike derailing the plans.
The Communication Workers Union, which represents most of the delivery service's 150,000 staff, will send out strike ballot papers next Friday if an agreement cannot be reached with Royal Mail over post-privatisation pay and conditions.
The CWU has argued that privatisation could threaten jobs and lead to a poorer service, while the government and Royal Mail itself argue it will provide access to the capital the firm needs to modernise its business and better compete in a thriving parcels market.
"We remain convinced that privatisation is the wrong decision for Royal Mail ... we want a commitment that a Labour government would renationalise Royal Mail," CWU General Secretary Billy Hayes said, referring to Britain's main opposition party.
Fallon said there were concerns about any privatisation among the workforce and among the people who relied on that organisation's service, but said there were safeguards in place.
"The six day a week service that we all rely on and that businesses rely on, that is absolutely protected ... and there is going to be no change to that," Fallon told BBC radio.
Members of the public must spend a minimum of 750 pounds if they want to buy shares, while Royal Mail staff will only have to spend a minimum of 500 pounds if they want to add to the potential 2,000 pounds worth of stock each worker will receive, based on a flotation value of 3 billion pounds.
The sale plan is be the fourth time Britain has tried to take Royal Mail public, after three attempts failed in the last 19 years due to opposition from within the governing majority, which feared an electoral backlash from tampering with a revered institution whose red post-boxes are known around the world.
Opposition business spokesman Chuka Umunna called the move "a politically-motivated fire sale", while a poll by YouGov in July showed 67 percent of the public opposed the sale.
Royal Mail, which no longer includes the Post Office services and retail business, has revenue of over 9 billion pounds and more than doubled operating profit in the year ended March 31 to 403 million pounds, helped by a greater focus on parcels, which make up almost half its turnover.
It had an operating profit margin of 4.4 percent in the year, up strongly from the 1.7 percent recorded in 2012.
In response to falling letter volumes, the firm has shed 50,000 jobs in the past decade and shut around 25 mail centres.
Royal Mail said conditional on the listing it had agreed new debt facilities worth 1.4 billion pounds with a banking syndicate that would replace all existing loans from the government and lead to a significant reduction in the overall cost of the group's debt.
ETX Capital said in a note to clients the details of the debt facilities would allay any concerns the privatisation would be difficult, particularly in light of the strike threat.
"We expect it to be priced very attractively by the government in order to garner the demand to deem this IPO as a success given the importance surrounding it," the broker said.
Stephen Bailey, co-head of the Liontrust Macro Equity Income Fund, said it and other investors were awaiting more details.
"We are looking at the offer, as I think most UK managers are going to. But we are keen to hear more detail on the restructuring that is ongoing at Royal Mail, and at the moment, we only have very scant information on the financials," Bailey told Reuters.
Among examples of privatised postal services making healthy profits, three from continental Europe, including Germany's Deutsche Post, trade on average in line with the biggest listed UK companies on a multiple of 12.4 times forecast earnings for the next 12 months.
The government, which has hired Goldman Sachs and UBS to drum up interest in the share sale, said Royal Mail planned to pay a final dividend next July totalling 133 million pounds. Had the company been listed for the full year, it would have paid a total of 200 million.
Royal Mail Chief Executive Moya Greene, who saw the CWU reject her company's three-year pay offer in July, will get another chance to try to appease union members on Thursday when she faces 1,500 of them at a conference in Birmingham.
In Thursday's statement, Royal Mail said it believed union members would vote to strike, with the earliest date for action set to be October 10, but it had contingency plans in place.
(Additional reporting by Belinda Goldsmith and Sinead Cruise; Editing by Kate Holton and David Holmes)