One of the top investors in Royal Mail’s owner has said it is vulnerable to “corporate predators”, arguing that a recent takeover bid by a Czech billionaire significantly undervalues the company.
Redwheel called for regulators to water down the UK postal service’s legal obligations after Daniel Křetínský’s failed takeover attempt of its parent company International Distributions Services (IDS).
It emerged last week that the IDS board had unanimously rejected a £3.1bn bid by Křetínský’s EP Group earlier this month, calling it “opportunistic”.
Křetínský is considering making an improved offer for IDS, according to reports, and has until 15 May to make a fresh bid under UK takeover rules.
Royal Mail has been under pressure for years as the volume of letters continues to decline. The UK regulator, Ofcom, is considering options for the future of the service, including letting it cut the number of days it must deliver letters under its universal service obligations (USO).
The USO was well known to the investors who bought shares in Royal Mail when it was privatised in 2013. However, many of the investors now argue that the legal requirement to deliver post across the country at a fixed price every day bar Sunday is unsustainable.
Rishi Sunak has said the government will oppose any cuts to the six-day service but Royal Mail has asked Ofcom to allow it to reduce second-class letter deliveries to two or three days a week, cutting almost 1,000 jobs and saving £300m a year.
Redwheel is the third-largest shareholder in IDS, behind Křetínský’s investment vehicle Vesa and Schroders. Ian Lance, a co-head of Redwheel’s value and income team, said in a statement first reported by the Sunday Times that it believed Royal Mail was “vulnerable to corporate predators” because of enforced costs caused by its legal obligations.
“Letter volumes have declined from 20bn at their peak in 2004-5 to 7bn in the last financial year and are likely to continue to fall,” Lance said. “The USO means Royal Mail must maintain a high fixed-cost network without the revenue to sustain it.
“We would urge that change to the USO needs to be meaningful, provide long-term relief from the material and unreasonable cost burden and be implemented rapidly.”
Křetínský’s wealth came from his investments in coal power stations, and is known as the “Czech Sphinx” of his low profile and inscrutable approach.
However, he has gained increasing prominence by buying stakes in Le Monde newspaper, Sainsbury’s supermarket and the French counterpart Casino, and then Royal Mail. He also has a stake in West Ham football club.
EP Group was approached for comment.
