The owner of Royal Mail backed an offer of £3.5bn from a Czech millionaire for the postal service after he sweetened his takeover plan, creating a headache for the Government.
Royal Mail’s parent, International Distributions Services, , rejected last month a preliminary offer of 320p per share or £3.1bn from Daniel Kretinsky. The part-owner and shareholder in West Ham United, EP Group is the postal services’s majority shareholder.
On Wednesday, the group, which includes GLS’s international parcels division as well, said that it would likely recommend to its investors an offer of 370p per share if the formal filing was made.
Keith Williams, IDS’s chair, stated: “The Board is inclined to recommend this price which it believes to be fair, and reflects GLS’s current growth plans, and… the progress made by Royal Mail in adapting the business to an important fall in demand for letters, and growth in parcels.”
IDS stated that its prospective buyer had agreed to “protect current employee rights and continue to recognize existing unions”, along with keeping the Royal Mail logo and maintaining the UK headquarters.
Kretinsky is also known as Czech Sphinx due to his inscrutable and low-profile approach. He has stakes in Sainsbury’s as well as in a number of power plants. He already has a 27,6% stake in IDS.
IDS said that Kretinsky’s first offer “significantly underestimates” the value of the company.
The government’s decision to back Kretinsky’s latest offer is a problem during an election year and in the midst of increased scrutiny on foreign ownership of UK infrastructure assets.
His interest comes at an important time for Royal Mail. The struggling company hopes that the industry regulator Ofcom will allow a speedy reform to the universal service obligations (USO) which require the Royal Mail of 508 years old to distribute across the country for a single price, six day a week.
IDS stated that EP had agreed to a “set contractual undertakings” to protect public interest factors, and to recognise Royal Mail as an important part of the national infrastructure. It expected the bidder would present this to government.
Royal Mail has committed to delivering first class letters six days per week.
IDS wants to be able to reduce second-class deliveries every other weekday. IDS stated that EP would keep “key elements” from the proposals. Rishi Sunak is against any reductions to Royal Mail’s obligations.
Kretinsky has reportedly privately assured that he will not make mandatory redundancies, split up the group, or touch its £1.6bn surplus in pensions. If it decides to make a formal offer, EP will have to commit in these areas.
Dave Ward, general secretary of Communication Workers Union said: “The Royal Mail Board has grossly mismanaged this company.”
The EP Group must demonstrate an immediate and upfront commitment to work with the union in order to completely change the workplace culture across the UK.
The regulators and the parliament will closely monitor any takeover of Kretinsky. The government informed Royal Mail in 2022 that it would be studying an increase to Kretinsky’s stake, under the National Security and Investment Act. This investigation was halted later in the year.
Royal Mail was privatised for £3.3bn in 2013, despite protests from employees and Labour’s complaints that the sale represented a “fire-sale of a great British Institution”.
The takeover is a huge windfall for the thousands of postal employees who received shares during privatisation, and retained them. If the deal is finalized, shareholders will receive a £76m special dividend.
Redwheel, IDS’s third largest shareholder, had back in rejecting Kretinsky’s earlier offer.
IDS will release its annual results on the 23rd of May, and under City takeover regulations, Kretinsky only has until the 29th May to submit a formal bid.
After the confirmation of the higher bid on Wednesday, shares rose 19% from 214p to 322p.
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