Magic Circle firm Freshfields Bruckhaus Deringer accumulated £1.8m in legal fees for its advice to the UK government on the controversial privatisation of Royal Mail last year, a report out today (1 April) from the National Audit Office (NAO) has revealed.
The NAO’s detailed report shows that Freshfields recovered a large part of its advisory fees from Royal Mail, except for £211,000 paid to the firm in respect of shares sold to the UK Armed Forces.
The investment banking syndicate led by Goldman Sachs and UBS was paid £12.7m.
The government notified the London Stock Exchange in September 2013 that the Royal Mail initial public offering was imminent, with corporate partner Tim Jones leading for the Department for Business Innovation and Skills (BIS) on the IPO, backed by a team including pensions partner Charles Magoffin. Freshfields has been the department’s adviser since 2009.
Linklaters advised the underwriters, Goldman Sachs and UBS, while Slaughter and May led by equity capital markets (ECM) partner John Papanichola alongside corporate finance partner William Underhill advised Royal Mail.
The float in October saw the Shareholder Executive, part of BIS, sell 60% of the government’s shares for 330p, generating £1.98bn. A further 10% stake was given to Royal Mail employees and 30% retained in public ownership.
Today’s report from the NAO found that the government did not achieve the best value for the taxpayer in its float of Royal Mail, in which shares are now over 70% higher than the 330p sale price.
The report concluded that the BIS placed significant reliance on financial advisers to prioritise completing the sale, concluding ‘Government should consider ways to reduce reliance on professional advisers, and ensure that where it does use advisers it seeks to optimise overall value for the taxpayer.’ However, legal advisers were not included in this statement and there was no criticism directed at the Magic Circle firm.
The Government has responded to the NAO’s report by saying that it welcomed the NAO’s conclusions that it had achieved its key objectives, including securing the future of the postal service through a successful sale of a majority stake, and protecting taxpayers from the risk of needing to offer ongoing support to the company.
It also highlighted a finding of the NAO report that Government ‘was right to appoint expert advisers, while the fees paid to the advisers were low compared to the market average and to government precedents.’