Government approves acquisition of Royal Mail’s parent company by Czech billionaire

The government has approved the acquisition of Royal Mail’s parent entity by a Czech billionaire. This £3.6 billion acquisition by EP Group, led by Daniel Kretinsky, received official consent following the agreement of “legally binding” commitments. A “golden share” will be maintained by the government, mandating its approval for any significant alterations concerning Royal Mail’s ownership structure, headquarters location, and tax domicile. Furthermore, EP Group is obligated to uphold the Universal Service Obligation (USO), which ensures a uniform price for deliveries nationwide. This currently entails letter deliveries six days weekly, from Monday to Saturday, and parcel deliveries from Monday to Friday. The acquiring company has pledged to continue the USO throughout its ownership of Royal Mail. Previously this year, Mr. Kretinsky informed the BBC of his intention to honour the service, regardless of its future configuration, “for as long as I am alive”. The USO is presently undergoing scrutiny, and Royal Mail has proposed to the regulator Ofcom that decreasing second-class deliveries to alternate weekdays could result in annual savings of up to £300 million and provide the company “a fighting chance”. Ofcom stated in September that it was examining these proposed modifications, with a determination anticipated next year. Dame Melanie Dawes, Ofcom’s chief executive, conveyed to the BBC that there are “real questions about what the service needs to be going into the future”. She further noted that with declining letter volumes, “we have to think about what is economical,” and that Ofcom intends to release plans next year “to make sure it is sustainable.” The acquisition of International Distribution Services (IDS), Royal Mail’s parent entity, is projected to finalize early next year. The transaction, when factoring in debts, assigns a value of £5.3 billion to the company. Business Secretary Jonathan Reynolds commented that although shareholder approval is requisite for the transaction, the accord achieved by the government signifies that the acquisition “will be a good deal for the UK, be a good deal for the people who work for Royal Mail and a good deal for customers”. Mr. Kretinsky stated that discussions with the government had “resulted in unprecedented commitments and undertakings.” He further mentioned that EP Group had a “mission to make Royal Mail a successful modern postal operator with high quality service and products for its customers”. Among the stipulations accepted by EP Group are the preservation of the brand name, Royal Mail’s headquarters, and its tax residency within the UK for the forthcoming five years. An agreement in principle has also been established with trade unions, which provides for employees to receive a 10% share of any dividends distributed to Mr. Kretinsky. Additionally, a workers’ group will be formed to convene monthly with Royal Mail’s directors, thereby enhancing employee representation in operational decisions. Dave Ward, general secretary of the CWU union, informed the BBC that this constituted an “extensive agreement” and that the transaction represented the “best opportunity” to secure Royal Mail’s future. Nevertheless, he clarified that the union had “not agreed anything” regarding USO reform and that “a long way to go” remained before such an agreement could be reached. IDS also possesses GLS, a highly lucrative European parcels operation that generated over £300 million last year. This revenue compensated for Royal Mail’s losses, enabling IDS to declare a modest profit. Mr. Kretinsky aims to establish a pan-European logistics enterprise by introducing GLS’s parcel expertise to the UK market and investing in out-of-home delivery lockers. The expectation is that this strategy will allow Royal Mail to regain market share previously ceded in the expanding and profitable parcels sector. Mr. Kretinsky’s net worth is estimated at £6 billion, as per the Sunday Times Rich List. Beyond his stakes of 27% in West Ham United football club and 10% in Sainsbury’s, Mr. Kretinsky’s enterprises also operate a gas transmission service that continues to transport significantly diminished volumes of Russian gas to Europe, with payment and approval from the EU. Earlier this year, the proposed acquisition was subjected to review under national security legislation, given Royal Mail’s designation as critical national infrastructure. However, addressing Members of Parliament in November, Reynolds had characterized Mr. Kretinsky as a “legitimate business figure” whose purported connections to Russia had been investigated and cleared when he acquired the largest shareholding in the company almost two years prior. Royal Mail, which was separated from the Post Office and privatized ten years ago, has experienced a decline in performance in recent years, resulting in substantial financial deficits. The quantity of letters dispatched within the UK has drastically decreased, with current volumes representing half of those recorded in 2011. Last week, Ofcom, the regulator, imposed a £10.5 million fine on Royal Mail for its failure to achieve delivery benchmarks for first and second-class mail. Dame Melanie Dawes of Ofcom informed the BBC that it is incumbent upon the new owners to implement improvements, and the regulator would “absolutely” hold Royal Mail accountable. Jenny Hall, Royal Mail’s director of corporate affairs, conveyed to the BBC that the company is investing to enhance performance, but stressed that it was “really important” for the USO to be revised to align with consumer patterns. She further stated that Royal Mail would consistently endeavour to keep postage expenses as minimal as possible, but prices “need to reflect the realities of delivering the service”. The cost of a second-class stamp, presently 85p, is regulated by Ofcom, with annual increases permitted for Royal Mail being linked to inflation. Conversely, no such restrictions apply to first-class stamps. In October, Royal Mail raised the price for first-class mail by 30p to £1.65, attributing this decision to “very real and urgent” financial difficulties.