Royal Mail’s owner has warned that a potential £3.5bn bid by the Czech billionaire Daniel Křetínský could create risk around the company’s finances.
The warning came as the industry regulator Ofcom announced that it had opened an investigation into the parent group, International Distributions Services (IDS), for failing to meet its annual delivery targets for the second year in a row. Last year, Ofcom fined the company £5.6m for failing to meet its first-class and second-class delivery targets in 2022-23.
The warning over the revised offer by Křetínský’s EP Group, which IDS has said it is “minded” to accept, was issued in delayed annual results released on Friday afternoon. The company had apologised on Thursday for failing to release its results at 7am as scheduled, because of auditor delays.
The IDS board said Royal Mail had “adequate resources” to continue operating for at least 12 months, but its long-term prospects hinged on whether the new owners would be able to maintain existing loans and secure fresh funding.
“The extent of the uncertainty related to whether existing finance will be recalled following a change in control, together with a lack of visibility or control over the availability of funding following a change in control,” IDS said.
The report said this created “material uncertainty” and “may cast significant doubt on the entity’s ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business”.
IDS reported that the company had swung to a £26m operating profit in the year to March, up from a £742m loss a year earlier. IDS benefited from better performance by its Royal Mail division, where price hikes and an increase in parcel deliveries helped narrow its losses to £254m, compared with a bumper £1bn loss in the previous 12 months.
EP Group has until 29 May to formally submit its £3.5bn bid, improved from an earlier £3.1bn offer that IDS had said “significantly undervalues” the company, or walk away from a takeover for six months.
Křetínský’s takeover interest comes against the backdrop of potential changes to the postal industry. Earlier this year, Ofcom laid out possible options for the future of the universal service obligation (USO), which mandates Royal Mail to deliver nationwide, six days a week, at a fixed price.
In response, Royal Mail has suggested it could pare back its second-class service to every other weekday to save money. However, it has committed to delivering first-class letters six days a week – a promise that EP plans to honour, IDS has said.
EP is expected to present a series of undertakings to the government, including pledges not to make compulsory redundancies or split up the group, which also includes the international parcels arm GLS. Last week, IDS bosses met the business secretary, Kemi Badenoch, to discuss the bid and changes to the USO.
The chancellor, Jeremy Hunt, has said any takeover bid for IDS would face a “normal” security review, but the government is not in principle opposed to EP’s bid.
Under the terms of the proposed Křetínský deal, the takeover would hand a windfall to the thousands of postal workers who have retained the shares they were given when Royal Mail was privatised in 2013. Shareholders will also be given a special dividend if the takeover is completed, worth £76m.
• This article was amended on 24 May 2024 to clarify the risk assessment in IDS’s report.
