Royal Mail Underpriced?

A National Audit Office report released today has criticized the UK government for selling shares in Royal Mail too cheaply. Some estimates suggest that the UK taxpayer could have obtained £1 billion more in the privatisation. 

The underpricing of Initial Public Offerings (IPO) is a well-known phenomenon in financial economics, with the average IPO making a first-day return of 10% (see Jay Ritter's homepage). However, the first-day return on the Royal Mail IPO was 38% - the company was sold too cheaply by the government. The question is: why did they do this? Was it simply incompetence? Were the investment banks behind the issue lining their pockets and those of their clients?