Takeover of Royal Mail cleared by Government in return for time-limited promises
The Royal Mail is loss-making, routinely fails to deliver on its regulatory service targets and has a long history of bitter run-ins with one of the few unions left in the UK with heft.
In one sense it’s a pretty unappealing package.
But Daniel Křetínský spies an opportunity, and on Monday morning his takeover bid for the parent company of Royal Mail has been given pretty full-throated approval by the Government.
The Czech billionaire - who is nicknamed the Czech sphinx – has made a series of legally binding commitments to secure the green light.
The government retains a special or "golden" share, giving it the power to veto any major future changes to Royal Mail’s tax residency or the location of its headquarters, although not its future ownership.
Mr Křetínský has agreed that, until 2030, he won’t receive any dividend payouts until the company hits delivery targets for first and second-class mail.
There’s no seat on the board for workers but, in a separate agreement with the Communication Workers Union (CWU), Mr Křetínský has pledged to give Royal Mail’s 110,000 staff a 10% share of any future dividends and a say in how the business is run via a Workers Group.
Existing guarantees have also been strengthened. Mr Křetínský has promised:
To honour the Universal Service Obligation - to deliver everywhere in the UK for the same price - indefinitely (rather than for five years).
No compulsory redundancies until OFCOM’s review of USO is completed in 2026.
To ensure that any money received from the £1 billion surplus on the pension scheme is directly invested in the company or paid to staff.
To retain the brand name and keep the company headquartered in the UK indefinitely (rather than for five years)
The national security risks have been weighed up and the government's view is that Mr Křetínský's commercial interests in Russia are not a cause for concern. Deal done? Almost, but not quite. The European Commission has yet to signal its approval.And then it’s over to shareholders.
Is the offer of 370 pence a share considered a decent price? Will they tender their shares?
Mr Křetínský has 27.5% stake. Once he reaches 75% the deal becomes unconditional and Royal Mail can be delisted.
Mr Křetínský's offer is far short of the 455 pence the government demanded when Royal Mail was floated on the stock market in 2013.
Since then letter volumes have halved and the company has faced ferocious competition from other parcel delivery firms like Amazon.
Royal Mail is also failing to deliver for its customers.
Last week, OFCOM fined the company £10.8 million for missing its First and Second Class delivery targets for a second consecutive year.
“Far too many people aren’t getting what they pay for when they buy a stamp,” says the regulator and “poor service is now eroding public trust in one the UK’s oldest institutions”.
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Mr Křetínský has faithAnnual sales of £8 billion are not to be sniffed at. OFCOM has signalled a willingness to make second-class deliveries less frequent - a move that would cut costs by up to £300 million a year.
The road back to profitability may not prove to be long or arduous.
And if the service cannot be revived? Royal Mail’s property portfolio is in locations that would delight an estate agent.
The pension scheme is in rude health. And GLS, the Dutch logistics company, which is also part of International Distribution Services (IDS), is highly profitable and, according to analysts, has a standalone valuation not far off the price Mr Křetínský is offering for the group.
There’s a lot of upside here.
Mr Křetínský has publicly bound his hands in a time-limited fashion in order to get clearance for his takeover.
We know what he won’t do, but not very much about what he will.
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