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  • Royal Mail (Questions)

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    Andrew Sumir
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    Royal Mail plc had a unique initial public offering as a former state-owned postal service that was recently privatized. There was high demand and oversubscription for the shares during the IPO period. The stock opened at a price of 448p per share on its first day of trading, significantly higher than the IPO price of 330p per share, representing underpricing that left approximately £400 million unrealized for the seller. Underpricing can benefit the issuer, underwriters, and new investors by generating higher first-day returns that promote future business while easing share placement.

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    Royal Mail plc had a unique initial public offering as a former state-owned postal service that was recently privatized. There was high demand and oversubscription for the shares during the IPO period. The stock opened at a price of 448p per share on its first day of trading, significantly higher than the IPO price of 330p per share, representing underpricing that left approximately £400 million unrealized for the seller. Underpricing can benefit the issuer, underwriters, and new investors by generating higher first-day returns that promote future business while easing share placement.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    7 views1 page

    Royal Mail (Questions)

    Uploaded by

    Andrew Sumir
    Royal Mail plc had a unique initial public offering as a former state-owned postal service that was recently privatized. There was high demand and oversubscription for the shares during the IPO period. The stock opened at a price of 448p per share on its first day of trading, significantly higher than the IPO price of 330p per share, representing underpricing that left approximately £400 million unrealized for the seller. Underpricing can benefit the issuer, underwriters, and new investors by generating higher first-day returns that promote future business while easing share placement.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    The sale of Royal Mail plc: Valuation and pricing

    Questions

    1. What is unique or unusual about Royal Mail as an IPO candidate? What is unique about
    the transaction period?
    2. What could be the value of Royal Mail given the valuation of comparable companies?
    3. Consider the evolution of demand for the stock, the final demand levels and the source of
    that demand. Why is there oversubscription? What can we infer from this information?
    4. Knowing that “On October 10, 2013, Royal Mail plc announced that it had decided on an
    IPO price of 330p a share. The stock began trading the next day, opening at 448p and
    closing at 455p…”
    (1) Estimate the IPO underpricing and “how much money was left on the table”;
    (2) What could have been the potential reasons/explanations for IPO underpricing?
    Consider the objectives of the issuing firm/the seller, the underwriter, and the
    new investors.

    Additional information:
    • At the time of IPO, the number of outstanding shares of Royal Mail was around 1 billion
    • Last year’s depreciation and amortisation were equal to £ 280 million

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