Almost every aspect of Daniel Křetínský’s fresh offer for the owner of the Royal Mail is unsatisfactory: the price, the identity of the bidder and the sketchy “undertakings” to protect the UK postal service.
First, the terms – 370p a share, or £3.5bn – only look attractive if you think the government, or the next one, will maintain the current blinkered stance of refusing to reform Royal Mail’s six-day-a-week delivery obligations.
Even as he issued a “minded to recommend” verdict on the terms, Keith Williams, the chair of International Distributions Services (IDS), the parent company, took a pop at the government’s intransigence on the universal service obligation – and he was right to do so. It should be screamingly obvious that Royal Mail needs some regulatory relief to compensate for the massive decline in letter volumes over the past 15 years. That issue, delayed by a pandemic that briefly yielded bumper profits for Royal Mail, should have been tackled years ago.
But therein also lies the weirdness of the timing of this takeover offer and IDS’s backing for it. Williams is rolling over just as the government and Ofcom, the regulator, are conducting a review that could, possibly, deliver economic sustainability for Royal Mail in the form of a reduced second-class service. Nobody imagines regulatory nirvana, but £300m of cost-savings, as Royal Mail’s proposal has it, would clearly improve the medium-term financial profile. It is why the superficially huge 73% premium to the pre-offer share price of 214p is not quite as it seems.
Second, the bidder here is almost the definition of problematic. Křetínský is a billionaire whose approach to clear and open communication has earned him the nickname “the Czech Sphinx”. In his last UK newspaper interview, he seemed to indicate to the Sunday Times a year ago that he would not bid for IDS.
Many European countries, like the UK, have privatised or part-privatised their postal services, but none has let them pass into private ownership from abroad. The dire example of the water sector is a neon-lit example of the danger of allowing ownership of critical bits of infrastructure – a description that still, just about, fits Royal Mail – to slip out of view. A stock market listing, which guarantees a loose level of accountability to the outside world, is a far better model.
Third, the set of “contractual undertakings” that the board of IDS is negotiating with Křetínský are a work in progress, at best, or junk mail at worst. It’s welcome, of course, that Royal Mail’s headquarters would stay in the UK, and that the business would remain tax-resident here. But in the next sentence we learn that “the exact scope and duration” of such pledges haven’t yet been pinned down.
Nor is there any mention of whether GLS, the very profitable Amsterdam-based parcel business that is worth far more than Royal Mail, could be formally separated under Křetínský’s ownership. It is a significant issue because it raises the huge question of what financial resources would be given to a standalone Royal Mail, which is currently loss-making. Given that Křetínský’s group owns 30% of the Dutch parcels operator PostNL, one has to assume that the Dutch end of IDS is central to his takeover logic.
When he made his initial, and rejected, 320p-a-share offer last month, it seemed possible that this takeover tale could quietly fizzle out. Thus it was easy for government ministers and Labour opponents to squirm and be noncommittal when asked about the national interest and foreign ownership. That is not an option now. This proposal needs maximum scrutiny.
