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The Guardian - UK
The Guardian - UK
Business
Rob Davies

What will Royal Mail’s takeover mean for customers and postal workers?

The exterior of a Royal Mail delivery office.
The board of Royal Mail’s parent company, International Distribution Services, has agreed to a £3.57bn takeover bid from the Czech billionaire Daniel Křetínský. Photograph: Chris J Ratcliffe/Reuters

The billionaire sometimes known as the Czech Sphinx appears to be on the verge of becoming the first person to buy the Royal Mail in its 500-year history.

The board of the British postal service’s parent company, International Distribution Services (IDS), has agreed to a £3.57bn takeover bid from Daniel Křetínský, meaning the deal has a strong chance of going through.

A sale would mark a milestone in the history of a business that was privatised just over a decade ago but that can trace its history back to Henry VIII’s Masters of the Post.

So what will a takeover mean for customers and posties and what can we expect from the Czech Sphinx?

Who is Daniel Křetínský?

Křetínský is a law graduate from the city of Brno who has risen to become one of the richest people in the Czech Republic. He has investments across Europe, spanning industries including energy, media, retail and sport, all housed within his holding company EP Group. His soubriquet derives from his supposedly inscrutable approach to business.

In 2020, he turned his attention to the UK with his investment vehicle Vesa, a subsidiary of EP Group, amassing a 3% stake in the supermarket chain J Sainsbury. By the end of the same year, Vesa had also become the largest investor in the high street trainer chain Foot Locker and had begun building its stake in Royal Mail. The following year, he and his business partners bought 27% of West Ham United Football Club, sparking great excitement among fans about the impact his riches might have on the fortunes of the mid-table east London club.

By 2022, Křetínský had built up a stake of 27.5% in Royal Mail through Vesa. He now proposes to take the business private, becoming the first private individual to hold the reins of Britain’s postal service.

Why does he want it?

The answer isn’t obvious, given that EP Group has itself lamented the Royal Mail’s “weak financial performance, poor service delivery and slow transformation”. Křetínský clearly believes he can provide the investment required to modernise the company and restore it to profitability. He says Royal Mail can become one of the largest logistics companies in Europe but “must accelerate its transformation and investments into modernisation to keep up with the competition”.

Key to future profitability is something called the universal service obligation, which requires the postal service to fulfil certain obligations by act of parliament. The company has asked the government and the media regulator Ofcom to allow it to water down the requirements, including scrapping daily letter deliveries.

The postal union, the Communication Workers Union (CWU), has recently softened its opposition to this plan, indicating that Royal Mail could soon get the green light for savings of £300m.

What’s the government’s role?

IDS shareholders have to approve the deal but that’s unlikely to be a problem given that the board has recommended it and Vesa already owns more than a quarter of the company. However, the takeover could be scrutinised and even blocked under the National Security and Investment Act 2021, given that the postal service is a significant piece of British infrastructure. The chancellor, Jeremy Hunt, has indicated that state opposition is unlikely. Labour has said it welcomes the assurances given by Křetínský and would ensure they were adhered to if it wins the general election.

But in theory, the government could “call in” the takeover for scrutiny and prevent it, if it is deemed to be against the UK’s national security interests. The Czech Sphinx hopes to solve that riddle by issuing a series of undertakings and commitments, some demanded by IDS as a condition of accepting the offer, in the hope of securing the blessing of the British government. But they all have time limits.

What promises has Křetínský made?

For five years after any deal completes, Royal Mail must abide by a series of conditions. These include that the company continues as the UK’s universal service provider, with whatever requirements the government and Ofcom lay down after considering proposed changes to the obligation.

The list of legally binding undertakings includes a promise that the Royal Mail brand will be retained, including the royal “cypher”, the monogram you see on the side of post boxes. IDS and the Royal Mail will retain their UK headquarters and tax residency and must also continue to recognise their trade unions, the CWU and Unite.

The company must not transfer any cash to the parent company unless its debt is below a certain level and it also cannot use any surplus from the pension scheme to reward shareholders.

IDS has also secured contractual pledges including that EP supports the postal company’s existing proposals for the universal service and does not put forward any alternative plan. EP has promised that it won’t cut salaries and bonuses for a minimum of two years and will support Royal Mail’s planned new pension scheme for the same period.

What happens after the period ends?

EP Group can do what it likes after the periods covering its promises come to an end. In theory it could try to end its recognition of the postal worker unions, scrap the royal cypher, or even do something as insane as changing the company’s name to Consignia.

Any potential snags?

Debt could be an issue. Royal Mail has £1.7bn of existing debts. To buy out the remaining shareholders for £3.57bn, Křetínský will borrow another £2.3bn, meaning the group’s overall debt will increase. Sources close to the company say any extra leverage will stop short of affecting the company’s investment rating.

EP Group will also have to manage its relationship with the CWU carefully. Royal Mail workers staged a series of strikes throughout 2022 and 2023. Negotiations will be key to the company’s future performance. If Křetínský’s plans spell bad news for posties and their jobs, that could make for new hostilities.

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