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Thursday, May 01, 2014 

How privatisation works.

1. Deciding Royal Mail cannot stay in public ownership as it needs access to private capital, the government seeks the advice of investment banks and other masters of the universe on selling off the Queen's head.  Most of these institutions said shares in Royal Mail should not be sold for less than 300p.  The one dissenting voice was Lazard & Co, the corporate advisory arm of Lazard Asset Management.  They advised shares should instead be sold at a range of between 212 and 262p, and repeated this sentiment even when it was apparent that the business could have been bought outright by small investors, with the public offering massively oversubscribed.  Despite the government setting the cost at 330p a share, Lazard & Co are paid £1.5 million for their help.

2. The government decides to provide "priority" access to the shares to 16 investors on the proviso they are to hold on to them in the longer term.  Among those lucky enough to be chosen for this privilege were Lansdowne, a decision clearly not based on how the co-founder of the firm has donated £700,000 to the Conservatives, or how Peter Davies, the co-head of developmental strategy, was a certain George Osborne's best man.  Also included were Lazard Asset Management, who bought 6m shares at 330p.

3. The priority investors almost completely ignore the gentlemen's agreement and join in the bonanza when the shares go on sale.  By January of this year only 12% of the shares were still held by them.  Among those making a killing, albeit for their clients and not themselves, making it perfectly all right, was Lazard Asset Management, selling their shares less than 48 hours after they went on sale, generating a profit of £8.4m.

4. The chief executive of Lazard & Co denies any wrongdoing or conflict or interest in front of the Public Accounts Committee, despite admitting he knew that Lazard Asset Management had been allocated the shares as there was a "Chinese wall" in place between the two different arms.  The government also refuses to accept it could have handled the sale better, with David Cameron continuing to insist the sale was a great success, regardless of how pricing the shares higher could have brought in anything up to a further £750m.

5. Shares in Royal Mail closed today at 538p.

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