Royal Mail bid for Dutch rival 'unlikely', says Credit Suisse

In the run up to Christmas, there were newspaper reports that Royal Mail was preparing a €5 per share bid for PostNL, although this was denied by the Dutch company.

Credit Suisse said it doubted a bid was likely due to three key factors, chiefly as the FTSE 100 company's core focus "needs to be on self-help".

"RMG remains a multi-year restructuring story with top line challenges in mail and parcel, and we think manegement will be more likely to retain cash for restructuring than spending on significant M&A, which would also risk distracting attention from the task at hand," the Swiss bank said.

Analysts at the bank also see limited synergy prospects from any merger, given limited mail or parcel network overlap beyond the circa-20% of access mail provided by PostNL's Whistl and cost bases of both companies dominated by large workforces.

PostNL's core mail volume declines are predicted at 5-9% annually for 2015-2020, versus double digits over recent history.

"Further, PostNL's recent experience with the Dutch regulator - November's strategy update confirmed its expectation of a Eu30m-Eu50m hit from Significant Market Power measures - potentially increased labour difficulties under foreign ownership and the need to invest to at-best protect parcel margins provide further question marks."

CS kept Royal Mail's rating at 'underperform' with a target price of 400p, below the latest closing price of 444p.