Royal Mail owner ‘minded’ to back Daniel Křetínský takeover bid

The owner of Royal Mail said it would recommend a £5bn takeover bid from Czech billionaire Daniel Křetínský, as long as several conditions safeguarding the group’s future are met.

International Distribution Services, the owner of Royal Mail, said on Wednesday that Křetínský’s EP Group had raised its bid to 370 pence a share from 320p, which IDS rejected last month.

Including debt, the improved bid values London-listed IDS at £5bn, up from £4.5bn in the first bid. As well as the former UK postal monopoly, IDS owns the fast-growing Netherlands-based parcels business GLS.

“The board is minded to recommend this offer price, which it considers to be fair,” said Keith Williams, the chair of IDS, adding that EP Group had agreed to several undertakings that “recognise Royal Mail’s status as a key part of national infrastructure”.

The undertakings include continuing six-day-a-week delivery of first class letters, keeping the group’s headquarters and tax residency in the UK and preserving the investment-grade credit rating of IDS.

The UK government said it was “monitoring these developments closely” and that it would “engage with the bidder at an appropriate time to explain our expectations for the future of Royal Mail.”

EP Group also committed to protecting employees’ rights, recognising existing unions and preserving Royal Mail’s name and branding.

IDS said that its “board will continue to engage with EP Group to seek to reach agreement on the exact scope and duration of such undertakings”.

IDS’s shares rose more than 16 per cent to 314.8p in afternoon trading on Wednesday.

The shares have slid over the past three years as Royal Mail faces challenges relating to the high cost of its comprehensive, UK-wide delivery service, and adjusts to a steep drop in its volume of letters. The universal service obligation forces the company to deliver items everywhere in the UK for the same price, including letters six days a week.

“We recognise the importance of the Royal Mail to the British public,” the government said in its statement on Wednesday. “Our priority is to ensure that Royal Mail customers get the service they deserve, including six days-a-week deliveries and a guaranteed standardised price for post throughout the UK, as enshrined by the universal service obligations, regardless of the owner.”

Conservative sources acknowledged that Royal Mail “hated” universal service obligations but that the government had no intention of diluting them.

Williams said in his statement: “Despite four years of asking, the government has not seen fit to engage in reform of the Universal Service and thus improve our financial position”.

Meanwhile, Labour — which polls suggest will win the next general election that has to be held by the end of January — has written to Křetínský in a major political intervention, calling for safeguards to be put in place if the deal goes ahead. 

Jonathan Reynolds, shadow business secretary, demanded pledges that Royal Mail should remain domiciled in the UK and pay tax in the country, and work closely with the Communication Workers Union among other issues.

“Whilst it’s important that Britain remains open and attractive to foreign investment, Royal Mail is an iconic British institution with a unique place in our society and infrastructure,” he said. “Labour will take the necessary steps to safeguard its undeniable identity.”

Křetínský has been helped in his bid by former Labour MP Chuka Umunna, one of his bankers at JPMorgan. The businessman will need to work with government officials if he takes over the group, given its strategic importance.

In 2022, the UK government called off a probe under national security rules into Křetínský’s plans to increase his stake in Royal Mail to more than 25 per cent, suggesting he was not seen as high risk.

Since Křetínský’s first proposal was rejected last month, the two sides have been in talks over an improved bid.

Křetínský, a lawyer-turned-energy tycoon, is the largest shareholder in IDS, with a 27.5 per cent stake. His other UK investments include a stake in supermarket chain J Sainsbury and London football club West Ham United.

EP Group now has until May 29 to make a firm offer for IDS under UK rules governing takeover bids for public companies.

A successful takeover by EP Group would risk inflaming the tensions with postal workers that have underpinned Royal Mail’s woes in recent years. Dave Ward, secretary-general of the CWU, which represents postal workers, said in April that “handing over the ownership of Royal Mail to a foreign private equity investor cannot be right”.

Attempts by Royal Mail’s management to adapt working practices and capitalise on the growing parcel market have repeatedly drawn the ire of union members, who walked out for 18 days in 2022.

Even after it reached a deal on pay and working practices with postal workers last year, high staff vacancies have continued to impact service levels at Royal Mail, with regulator Ofcom warning in December that the company’s “performance has not shown any signs of improvement”.

Ward added on Wednesday that the CWU would not allow anyone taking over the business to “run letter deliveries into the ground”, adding the union will “develop a campaign that puts the future of the postal services right at the heart of this year’s general election. There will be no hiding place for the actions of this government or Labour.”

Additional reporting by George Parker in London