Royal Mail To Pledge City Dividend Bonanza

By Mark Kleinman, City Editor

Royal Mail will pledge to pay hundreds of millions of pounds in dividends to City shareholders in an attempt to win private sector support for its £3bn privatisation, Sky News has learnt.

The company will make the promise as part of a Government statement announcing its intention to float the centuries-old postal operator on the London Stock Exchange, which is expected to be made towards the end of next week.

Sources close to the planned listing of Royal Mail said on Friday that the company was likely to commit to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.

A valuation of £2.5bn - £3bn would see employees' stake worth up to £300m

The details are still being finalised and could yet change ahead of an announcement, one insider said.

Royal Mail's board is understood to have backed the dividend pledge in principle and is expected to meet next Wednesday to agree further details relating to the privatisation.

The dividend pledge is designed to reassure major City institutions about the attractiveness of Royal Mail as an investment proposition at a time when the threat of industrial action has again reared its head.

Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a large chunk of its future profits as it continues to invest in the modernisation of the company.

The share giveaway to staff will encompass 10% of Royal Mail's equity

"There will be an explicit and robust statement on the company's dividend policy, as you would expect," said a person close to Royal Mail.

However, the commitment on dividend payouts may also ignite further hostility from unions which have criticised the sell-off plans and accused ministers of transferring Royal Mail's economic value to the private sector while having nationalised its historic pension liabilities.

The Communication Workers Union (CWU) is preparing to hold a vote on national strikes at Royal Mail, saying it believed industrial action was "inevitable" without compromise from the company on issues including pay, jobs, pensions and the impact of any sell-off.

The Communication Workers Union is preparing to vote on national strikes

The union has been lobbying for a ten-year pay and conditions offer that would be underwritten by the Government.

The result of the ballot will be revealed in early October and the first strike could be held on October 10 if there is a vote in favour of industrial action.

A lack of progress settling the row could potentially lead to a dispute spilling into the festive season, Royal Mail's most profitable and crucial trading period.

The conflict has escalated despite a commitment made in July by Vince Cable, the Business Secretary, to hand 150,000 Royal Mail employees free shares in the company likely to be worth roughly £2,000-per-worker.

As a further sweetener, staff will be guaranteed a proportion of the retail element of the initial public offering (IPO).

Strikes could be held in October if employees vote for industrial action

The share giveaway to staff will encompass 10% of Royal Mail's equity, in accordance with the Postal Services Act that paved the way for the sell-off of the company two years ago.

At an overall valuation of between £2.5bn and £3bn, that would value the employees' stake at up to £300m.

Members of the public will also be able to buy shares in Royal Mail through intermediaries, a website and in Post Office branches.

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

The Government has vowed that the threat of a strike will not deter it from selling shares during the current financial year.

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