By Neil Maidment and William James
LONDON (Reuters) - Britain will list a majority stake in the Royal Mail postal service on the stock market in the next nine months, promising free shares for workers fiercely opposed to the country's biggest privatization in around 20 years.
Analysts expect the initial public offering (IPO) to value Royal Mail, which traces its roots to a service founded by King Henry VIII in 1516, at 2-3 billion pounds ($3-$4.5 billion), so selling a majority stake could raise over 1 billion pounds to help the country's stretched finances.
In a bid to weaken support for trade unions, which have helped to scupper past attempts to sell off the business, the government said it would give away 10 percent of shares in Royal Mail to its 150,000 UK postal workers, with the condition that they must be held for three years.
The company's management has long argued that access to external capital is vital as it invests in shifting its business away from falling letter volumes and toward a growing parcels industry fuelled by internet shopping.
But unions have threatened strike action, arguing privatization could jeopardize Royal Mail's commitment to provide a universal, six-days-a-week service and lead to a decline in working conditions for staff.
Business Secretary Vince Cable sought to sooth such concerns, saying the universal service would be protected by regulator Ofcom as well as parliament, and that privatization would not trigger a change in employment conditions.
"It cannot be right for Royal Mail to come cap in hand to ministers each time it wants to invest and innovate. The public will always want government to invest in schools and hospitals ahead of Royal Mail," he said.
State postal services have been privatized across much of western Europe. Last month, Belgium's bpost <BPOST.BR> received strong interest in its stock market debut, which was priced towards the top end of expectations.
Royal Mail, which no longer includes the Post Office services and retail business, more than doubled profit in the year ended March 31, helped by parcel demand.
The listing, which will take place in the company's current financial year, will include a retail offering for the public, for which Royal Mail workers will also receive priority treatment. Banks Goldman Sachs <GS.N> and UBS <UBSN.VX> have been appointed as lead advisers for the IPO.
Cable said the government would retain flexibility on the size of stake to be sold, pending market conditions and demand.
Britain's Conservative-Liberal coalition government, which paved the way for privatization last year by freeing Royal Mail of its hefty pension liabilities, has been criticized by the main opposition Labour party for pushing to sell off the firm at a time when its profits are rising.
The privatization push follows similar attempts by the Conservatives in 1994 and by Labour in 2009, both of which were scuppered by union threats and party rebellions, with the latter attempt also succumbing to rocky financial markets.
In a consultative ballot sent to 112,000 Royal Mail workers in June, the Communication Workers Union said that, from a 74 percent turnout, 96 percent opposed plans to sell the firm. It urged the government to consider other ways to access capital or risk strike action.
The retail element of the IPO plan is rare for Britain, and only usually considered for well known companies. In October last year insurer Direct Line <DLGD.L> sold around 15 percent of its 787 million pound IPO to retail investors who on average bought 5,000-6,000 pounds worth of shares.
A YouGov poll commissioned for a Think Tank paper released on Wednesday exploring the merits of privatizing Royal Mail showed that just 53 percent of the British public are aware of the sale plans, with 67 percent of people opposed to it.
($1 = 0.6743 British pounds)
(Additional reporting by Kylie MacLellan; Editing by Kate Holton and Mark Potter)