Czech's in the post as Kretinsky strikes £5.3bn deal for Royal Mail

Royal Mail owner International Distribution Services on Wednesday said it had reached agreement with Czech billionaire Daniel Kretinsky on a takeover worth up to £5.3bn for the 500-year-old company.

Kretinsky’s EP Group is offering 360p a share along with the 2p final dividend for the year to March 31 and a special 8p dividend to be paid if the deal becomes unconditional. He has also pledged to maintain Royal Mail’s guarantee of services six days a week for five years.

However, the deal must first be approved by the UK government, which has the power to intervene and block it. Matters are further complicated by the general election, with the main opposition Labour Party widely expected to win power on July 4. Shareholders will vote to accept or reject at the annual general meeting on September 25.

Shares in IDS rose by 4% to 334p in early afternoon trade, well short of the EP bid, suggesting either there is more to play for or the deal may be stymied.

IDS employs 150,000 people, many of whom are members of the powerful Communications Workers Union, which has long had a fractious relationship with management. Kretinsky, who already holds 27% of the company, pledged to continue recognising both the CWU and CMA Unite unions and not to touch any surplus in the Royal Mail pension scheme.

CWU general secretary Dave Ward said he would meet with Kretinksy next week for talks around a "reset" of industrial relations.

“I think it’s about testing Křetínský as to whether he’s got any plans for investing in the workforce and investing in growth strategies for the company, or whether his intentions are purely to asset strip the company," he said on Wednesday.

He also promised there would be no change of control for either GLS – the profitable international parcels operation run out of Amsterdam - or Royal Mail for three years.

PLEDGES ON ROYAL MAIL'S FUTURE

The company said it had negotiated a "far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards".

"These cover the provision of the one-price-goes-anywhere Universal Service Obligation - including First Class letters still delivered six days a week - the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK."

Other pledges include maintaining base salaries and benefits for staff for at least two years, no changes to Royal Mail’s branding or ownership for three years and a commitment to keep its headquarters and tax residency in the UK.

Kretinsky, nicknamed the “Czech Sphinx” because of his reticence to speak publicly, also holds 27% of the West Ham football club and 10% of supermarket chain Sainsbury’s.

In a statement he said he had the utmost respect for Royal Mail’s history and traditions and understood that owning the company came with enormous responsibility for employees but also UK citizens who relied on the services every day.

“But IDS’s market is evolving quickly, and it must accelerate its transformation and investments into modernisation to keep up with the competition. We will support the business in the next critical phase of its transformation and beyond, providing our experience and financial resilience to support the management team," he added.

Royal Mail was spun off from the Post Office and privatised 10 years ago and legally obliged to deliver a one-price-goes-anywhere "universal service" of letter delivery six days per week from Monday to Saturday, and parcels Monday to Friday.

It's performance over recent years has been less than stellar, with large losses high complaint rates about delivery delays or letters going missing amid large financial losses.

IDS posted a small profit in its last financial year thanks to its German and Canadian logistics and parcels business as online shopping becomes more popular, particularly during the Covid-19 pandemic, while letter volumes plunged to half of what they were in 2011.

The universal service obligation is also under review, with Royal Mail suggesting to Ofcom that reducing second class deliveries to every other weekday would save up to £300m a year and give the business “a fighting chance”.

Reporting by Frank Prenesti for Sharecast.com