The owner of Royal Mail has backed a £3.5bn offer for the postal company from a Czech billionaire after he sweetened the value of his planned takeover, creating a political headache for the government.
Last month, Royal Mail’s parent company, International Distributions Services (IDS), rejected a preliminary offer worth 320p a share, or £3.1bn, from Daniel Křetínský, the part-owner of West Ham United whose company, EP Group, is the postal service’s shareholder.
However, on Wednesday the group – which also includes the international parcels arm GLS – said it was likely to recommend a higher 370p a share offer to its investors if it was formally lodged.
Keith Williams, the IDS chair, said: “The board is minded to recommend this offer price, which it considers to be fair and reflects the value of GLS’s current growth plans and … the progress being made on change at Royal Mail to adapt the business to a significant fall in the demand for letters and growth in parcels.”
IDS said its suitor had agreed to “protect employees’ current rights and continue to recognise the existing unions”, as well as keeping the Royal Mail brand and maintaining its headquarters in the UK.
Křetínský, known as the Czech Sphinx for his low profile and inscrutable approach, also has stakes in Sainsbury’s, as well as a string of power stations. He already owns a 27.6% stake in IDS.
IDS had said Křetínský’s first offer “significantly undervalues” the company.
However, its backing for Křetínský’s latest offer creates a headache for the government during a general election year, and amid increased scrutiny of foreign ownership of critical UK infrastructure assets.
His interest comes at a crucial juncture for struggling Royal Mail, which hopes the industry regulator, Ofcom, will allow speedy reform of the universal service obligation (USO), which requires the 508-year-old Royal Mail to distribute nationwide for one price, six days a week.
IDS said EP had agreed a “set of contractual undertakings to protect key public interest factors and recognise Royal Mail’s status as a key part of national infrastructure”, which it expected the bidder to present to government.
This includes honouring a commitment by Royal Mail to offer a service delivering first-class letters six days a week.
IDS is pushing to be allowed to cut second-class deliveries to every other weekday. EP would stick with “key elements” of the proposals, IDS said. Rishi Sunak has opposed any cuts to Royal Mail’s obligations.
Since Křetínský’s intention to bid emerged, it has been reported he has privately made assurances that he would not make compulsory redundancies, split the group or touch its £1.6bn pension surplus. EP is expected to lay out firm commitments on these areas if it pushes the button on a formal bid.
Dave Ward, the general secretary of the Communication Workers Union, said: “The current Royal Mail board have grossly mismanaged the company. EP Group must immediately demonstrate an upfront and open commitment to working with the union to completely change the culture in workplaces across the UK, rule out any breakup of the company or raid of the pension surplus.”
If a takeover by Křetínský goes ahead, it will be heavily scrutinised by regulators and parliament. In 2022, the government told Royal Mail it would study an increase in Křetínský’s stake under the National Security and Investment Act. However, that investigation was called off later that year.
Royal Mail was privatised in 2013 for £3.3bn, despite opposition from workers and complaints by Labour that the coalition government’s sell-off represented a “fire sale of a great British institution”.
The takeover will hand a windfall to the thousands of postal workers who were given shares in privatisation and have retained their shares. Shareholders will also receive a special dividend if the deal is completed, worth £76m.
Redwheel, the third-largest shareholder in IDS, had backed the rejection of Křetínský’s earlier offer.
IDS will publish its annual results on 23 May and, under City takeover rules, Křetínský has until 29 May to make a firm bid.
The company’s shares have rallied from 214p before Křetínský’s interest, and rose by 19% to 322p after the improved bid was confirmed on Wednesday.
