Government 'more concerned by successful Royal Mail sale than share price'

The Royal Mail listed on the London Stock Exchange on the 11th October 2013.

In a sense the sale was a huge success - such was the stampede for a piece of the action that by the end of the day the shares that the Government had sold for 330 pence were changing hands for 455 pence - a rise of 38%.

The government sold its 60% stake for £1.98 billion but ever since has been accused of short-changing the taxpayer.

The National Audit Office has completed its independent assessment of the way in which the sale was conducted and come to the clear view that the Government and its City advisors did flog the company for less that it was worth. As the NAO puts it, somewhat more diplomatically: "Royal Mail's shares are worth much more than this process was able to extract".

Let's be fair; the backdrop to the sale was hardly ideal. As the NAO acknowledges, the United States was in danger of breaching its debt ceiling and here in the UK strike action loomed. Should the Government have delayed? Curiously, the NAO doesn't offer a view.

Before setting a price for Royal Mail the Government paid a series of banks for their advice, in rather the same way that you would ask an estate agent to value your home.

The NAO says the auction run by the banks (known as book building) failed to correctly judge the appetite for the company from pension funds, insurers and other big City investors. On the day the institutional offering was 24 times oversubscribed.

Now, listing a company is more of an art than a science. The point the NAO makes though is that the scale of the miss-pricing of Royal Mail is large, particularly by the standards of other recent stock market listings. The NAO says first-day trading performance tends to range "between a fall of 5% and and increase of 38%". Royal Mail was right up against to the top end of this range. In other words, as misjudgements go, this one was a whopper.

Read more: Caution over Royal Mail sale 'cost taxpayer'

Now we can't surely blame the Government for the duff advice it paid for but the NAO seems to be of the view that some of the advice could and should have been challenged.

In the run up to the sale, when it became very clear that demand was burgeoning, the NAO agrees that to have hiked the price at the last-minute, as Vince Cable was being urged, may well have jeopardised the sale.

But it also says that the Government could have responded by selling fewer shares. "The Department could have retained 110 million more shares, worth £363 million at the offer price while still achieving the policy objective of reducing the government's ownership below 50%".

The syndicate of banks and the government's advisor, Lazard & Co, urged the Government to push on and so the Government did.

The unflattering picture that emerges from the National Audit Office report is of a government more concerned with a successful sale of Royal Mail than the price paid for its shares and of a government that was too reliant on advisors.

How much did all this cost the taxpayer? On the first day of trading the stake the government sold increased in value by £750 million. The full benefit of this was felt by shareholders. Royal Mail's share price has since risen further.

The Government will point out that price wasn't everything, the aim here was also to attract the right sort of buyers. Not spivs and gamblers but "a long-term, stable and supportive shareholder base". But even on this measure the NAO suggests limited success.

The NAO says the government's caution led to shares in Royal Mail being mispriced and soaring on opening. As a result, the NAO found that almost half of the shares that were allocated to "priority investors" were sold within a few weeks.

Many of those long-term, stable, supportive investors the government said would inherit the company saw a big profit and took it.