Daniel Křetínský, the billionaire with a 22% stake in the Royal Mail group, never says much – thus his nickname “the Czech Sphinx” – but he picks his moments. On the eve of the first strike at the postal service since privatisation in 2013, he has been revealed to be planning to increase his shareholding.
We know this only because Kwasi Kwarteng’s department told us. In the formal language, the business secretary “reasonably suspects that arrangements are in progress or contemplation” that would lift Křetínský’s stake above 25%. Thus the planned purchase will be reviewed under the new National Security and Investment Act because Royal Mail, as we were reminded during the long months of Covid lockdowns, is still a critical piece of national kit.
Křetínský’s planned manoeuvre adds another layer of complexity to a situation where the stakes were already high. The current industrial dispute may appear to be a conventional one over pay and working practices, but there’s much more going on. The explicit threat from the boardroom is to break the group into two if a deal can’t be done on how Royal Mail runs itself. “We will look for significant operational change or split the company,” says the chair, Keith Williams.
The split in question is the separation of GLS, the international parcels operation run out of Amsterdam and making annual operating profits of £350m-ish, from Royal Mail, the UK business employing 115,000 people and heading for “material” losses this financial year, according to the group’s financial update issued after the Communication Workers Unions announced four strike days.
The break-up option, then, is one that would leave an independent Royal Mail to sink or swim. The business is facing a decline in letter volumes (still) and stiff competition from the likes of DHL and Amazon in parcels. It is why many City analysts ascribe a negative value to the UK operations within sum-of-the-parts valuations of the £2.5bn group. One does not have to make many assumptions to see how a crisis could unfold in a post-separation world.
The affordability of the universal service obligation, or USO – the requirement to deliver to every address in the land at a uniform price six days a week – might quickly come under pressure. A switch to five days for letters (dropping Saturday) has been rumoured for ages, but only parliament can approve. It is definitely a political matter: protecting the USO was guaranteed at the point of privatisation.
What is Křetínský’s game in seeking a bigger stake? A full bid is perhaps the least likely. Instead, there are probably three possibilities. First, that he likes management’s approach and thinks it will eventually produce a deal to turn Royal Mail into a slicker parcels-focused operation. Second, that he’s gung-ho for a break-up and wants to hold management’s feet to the fire. Third, if GLS shakes loose, he wants to be in pole position to buy it.
None of those possible plot-lines is likely to make the current dispute any easier to resolve. The two sides are currently miles apart. The CWU seeks an inflation-matching no-strings pay increase and, not unreasonably, points out that the UK business made an operating profit of £416m during the last Covid year and the group as whole paid out £400m to shareholders in special dividends and share buy-backs. Management responds that the Covid whoosh is over, that it won’t let GLS cross-subsidise an unreformed Royal Mail and that a basic offer of 2%, plus a conditional 3.5%, is the only one it can afford when rivals pay their workers substantially less.
Now we now have the formal question of whether a foreign billionaire can exercise a “material influence” on a UK group with a public service remit at the most critical point in its post-privatisation life. The workers’ mood may not be improved by that news. A vaguely harmonious resolution of the industrial dispute is becoming increasingly hard to spot.
Rules for fair commercial behaviour needed for energy suppliers
Friday brings the dreaded update to Ofgem’s energy price cap for households. Over in the small business sector, however, trouble has already arrived in the form of complaints that energy suppliers are demanding huge upfront deposits to sign fresh deals, as we report today.
Alternatively, new contracts are being refused by suppliers on the grounds that they need to cater for existing customers rather than take on new ones. Whether it’s Ofgem or the government, somebody needs to set out a definition of fair commercial behaviour. These tensions are only going to intensify.
