The board of the company that owns Royal Mail is expected to recommend a new takeover bid valued at £5bn on Wednesday, marking a significant move for the 500-year-old institution that
employs over 150,000 people. Czech billionaire Daniel Kretinsky is set to formalize this offer, which includes commitments to maintain the Royal Mail name, brand, UK headquarters, and UK tax residency, along with assurances against compulsory redundancies.
Business Secretary Kemi Badenoch has the authority to scrutinize and potentially block the deal under the National Security and Investment Act, although she has yet to meet Mr. Kretinsky. The market seems cautious, with shares of Royal Mail’s parent company trading at a 13% discount to the 370p per share offered by Kretinsky, suggesting a perceived risk of government intervention.
Despite this, some argue that the government’s lack of action when Kretinsky increased his stake from 22% to 27.5% in 2022 indicates a potential openness to the takeover. Chancellor Jeremy Hunt has stated that while the bid would undergo "normal" national security scrutiny, it would not face opposition in principle.
Shadow Business Secretary Jonathan Reynolds has emphasized the importance of Royal Mail in the UK's economy and outlined the commitments expected from Kretinsky’s offer. This comes amidst ongoing investigations by Ofcom into Royal Mail’s performance, particularly regarding missed delivery targets and financial struggles.
Royal Mail, privatized a decade ago, is legally bound to a universal service obligation, delivering letters six days a week and parcels five days a week. However, recent years have seen a decline in performance, leading to significant financial losses. The company’s parent, International Distribution Services, reported a small profit last year, primarily driven by its German and Canadian logistics businesses.
Letter volumes have halved since 2011, while parcel deliveries have become more profitable. Royal Mail has proposed to Ofcom that reducing second-class deliveries to every other weekday could save up to £300m annually, providing the business with a better chance of survival.
Dave Ward, General Secretary of the Communication Workers Union (CWU), criticized the privatization and recent management of Royal Mail, attributing the current situation to these factors. He welcomed some of Kretinsky’s commitments but expressed a lack of trust in senior management, accusing them of deliberately running down the service.
The CWU plans to meet with Kretinsky’s EP Group next week, advocating for a "complete reset" in employee and industrial relations and seeking further commitments on the company’s future. The union also intends to engage with the Labour Party and other stakeholders to propose a new ownership model for Royal Mail, aiming for greater worker involvement in key decisions.
Daniel Kretinsky, who made his fortune in the energy sector, has diversified into retail and logistics in recent years. He currently owns 10% of Sainsbury’s and 25% of West Ham United football club.
International Distribution Services and the Department for Business have been approached for comment but have yet to respond. Photo by Ross Holdway, Wikimedia commons.