Royal Mail owner poised to accept £3.5bn takeover bid

The owner of Royal Mail is poised to accept an improved takeover bid worth about £3.5bn from shareholder and Czech billionaire Daniel Kretinsky.

International Distribution Services (IDS) said it had received a revised proposal of 370p a share from Mr Kretinsky's EP Group.

It marks an improvement on the initial 320p-a-share cash bid made in April for the shares in IDS that it does not already own.

In an update to investors, Royal Mail's parent company said it would be "minded to recommend" the new proposal on the updated terms and price, should a firm bid be made.

IDS said Mr Kretinsky, whose investment vehicle currently owns a 27.6% stake in the firm, had agreed to offer a set of "contractual undertakings" to protect key public interest factors due to Royal Mail's major role in UK national infrastructure.

This would include commitments to Royal Mail's plans to keep six-day-a-week first class letter deliveries under the universal service, protect workers' rights as well as the Royal Mail brand, and keep its headquarters in the UK.

The deal still faces a number of hurdles, but IDS said that both sides would carry on speaking about the proposal in more detail.

Royal Mail, which was split from the Post Office and privatised a decade ago, is legally obliged to deliver a one-price-goes-anywhere universal service, which means it has to deliver letters six days per week, Monday to Saturday, and parcels Monday to Friday.

But the company's performance in recent years has deteriorated, leading to heavy financial losses, with customers regularly not receiving letters, including important medical appointments and legal documents, on time.

The volume of letters being posted has plummeted, with half the number being sent compared to 2011 levels. Meanwhile, parcel deliveries have become more popular - and more profitable.

In the update to investors on Wednesday, Keith Williams, chairman of IDS, described the initial offer as "fair" and said it reflected how the business was having to adapt.

"It is, however, regrettable that despite four years of asking, the government has not seen fit to engage in reform of the universal service and thus improve our financial position," he added.

Last month, Royal Mail set out a series of reforms it wanted to the universal service, one of which included cutting second-class letter deliveries to every other weekday, in a bid to cut costs.

In its submission to Ofcom's consultation on the future of the postal service, Royal Mail said that new ideas were needed to give the organisation a "fighting chance".

In response to the takeover bid, the Communication Workers Union (CWU), represents postal workers, warned that the "future of postal services in the UK is again under threat".

CWU general secretary Dave Ward said EP Group "must immediately demonstrate an up-front and open commitment to working with the union to completely change the culture in workplaces across the UK, rule out any break-up of the company or raid of the pension surplus".

"It cannot be right that a key part of national infrastructure is allowed to be owned by individuals or companies who have no vision for the future and no clear plan to put the workforce at the heart of turning Royal Mail around," he added.

Mr Kretinsky now faces a deadline of 17:00 on 29 May to make a firm offer.

While his previous bid was rejected, ministers cleared the EP Group to increase its stake above 22% in 2022, after a review on national security grounds.

The Czech entrepreneur also owns stakes in supermarket giant Sainsbury's and West Ham United Football Club.

Labour shadow business secretary Jonathan Reynolds wrote to Mr Kretinsky on Wednesday calling for safeguards to be put in place to protect the Royal Mail brand and ensure it was not operated overseas.

In the letter, Mr Reynolds said: "Royal Mail is as British as it gets, and Labour will take the necessary steps to safeguard its undeniable identity and place in public life."

Any firm takeover bid is likely to face intense questioning by politicians and regulators due to the volume - and vulnerability in some cases - of people who rely on its services.

A spokesperson for the Department for Business and Trade said it was "monitoring these developments very closely".

He added: "Our priority is to ensure that Royal Mail customers get the service they deserve, including six days-a-week deliveries and a guaranteed standardised price for post throughout the UK, as enshrined by the universal service obligations, regardless of the owner.

“We will engage with the bidder at an appropriate time to explain our expectations for the future of Royal Mail.”