Royal Mail owners agree to £5bn takeover offer

The board of the company that owns Royal Mail has agreed to a formal takeover offer for the 500-year-old organisation.

Czech billionaire Daniel Kretinsky has firmed up an offer of £5bn, including assumed debts, for the company which employs more than 150,000 people.

The entrepreneur said he had the "utmost respect" for its history and tradition.

The offer includes commitments to retain the name, brand, UK headquarters and UK tax residency, as well as protections for employee benefits and pensions.

Business Secretary Kemi Badenoch, who has yet to meet Mr Kretinsky, has the power under the National Security and Investment Act to scrutinise and potentially block the deal.

Markets seem to think there is a chance the deal will be blocked by the current or any future government as the shares in Royal Mail’s parent company are trading at a discount to the 370p a share being offered by Kretinsky.

However, others point to the fact that the government did not intervene at a time it could have done in 2022 when the entrepreneur raised his stake from 22% to the 27.5% of shares he already owns.

'Enormous responsibility'

Chancellor Jeremy Hunt has said that any takeover bid for Britain's Royal Mail would be subject to "normal" national security scrutiny but it would not be opposed in principle.

Shadow business secretary Jonathan Reynolds wrote to Mr Kretinsky two weeks ago to stress the historic and crucial role that Royal Mail played in the life and economy of the UK, spelling out undertakings that Mr Kretinsky’s offer should entail.

In an update to investors on Wednesday, Mr Kretinsky said: "I know that owning this business will come with enormous responsibility - not just to the employees but to the citizens who rely on its services every day.

"The scale of the commitments we are offering to the company and the UK government reflect how seriously we take this responsibility, to the benefit of IDS' employees, union representatives and all other stakeholders."

Royal Mail, which was split from the Post Office and privatized 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.

Parent company International Distribution Services (IDS) made a small profit last year which was entirely generated by its German and Canadian logistics and parcels business, off-setting losses at Royal Mail.

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.

The universal service obligation is under review, with Royal Mail suggesting to Ofcom that reducing second class deliveries to every other weekday would save up to £300m a year and give the business “a fighting chance”.

The firm offer included various commitments around services and the company itself, including:

• Maintaining the "one price goes anywhere" universal service and not to raid the pension surplus

• Keeping the brand name and Royal Mail's headquarters and tax residency in the UK

• A promise to respect the unions demands for no compulsory redundancies (until 2025) and negotiate with the Communication Workers Union (CWU) to extend that commitment

On Wednesday, Keith Williams, the chair of IDS, said its board had negotiated a "far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards."

He said the board believed the offer from Mr Kretinsky's EP Group was "fair and reasonable" given there may be uncertainties ahead for the business.

Dave Ward, general secretary of the CWU which represents postal workers told the BBC's Today programme that it would like "more extensive assurance" about the future of the UK postal service.

"I think it's about testing Mr Kretinsky as to whether he's got any plans for investing in the workforces, investing in growth strategy for the company or whether his intentions are purely to asset strip the company," he said.

The CWU will also be directly engaging with Labour and others to call for a new model of ownership for Royal Mail, where it hopes its members would have a "direct say in key decisions".

On Wednesday, the shadow business secretary said that Labour would "take the necessary steps to protect [Royal Mail's] undeniable identity and place in public life."

There are still, however, several stages to go before any takeover would become fully-binding.

Shareholders will vote on the deal at IDS's next annual general meeting in September.

Mr Kretinsky made his fortune in the energy industry but has in recent years diversified his interests into retail and logistics. He owns 10% of Sainsbury’s and 27% of West Ham football club.

The BBC understands that the Department of Business and Trade would expect any bidder for the Royal Mail Group to engage with ministers.

Who is Daniel Křetínský?

Daniel Křetínský, the would-be owner of the Royal Mail, has all the trappings of the modern day billionaire.

The 48-year old Czech businessman and lawyer is worth a cool £6bn, according to the Sunday Times Rich List.

He owns fancy houses in upmarket areas.

These include Heath Hall on London's Bishop Avenue - aka billionaire's row - which he bought for £65m and once rented to popstar Justin Bieber for a reputed £25,000 a week.

He also spent €21.5m (£18.3m) buying a Parisian townhouse down the road from the Elysee Palace from Russian oligarch and fertilizer magnate Dmitry Rybolovlev and his ex-wife.

Mr Křetínský also owns a share of the Velaa private island resort in the Maldives.

And, like others in his wealth bracket, he has a football club or two. These include AC Sparta Prague, as well as Britain's own West Ham in which he holds a 27% stake.

Apparently known as the "quiet sphinx" for his inscrutable style, what is known about Mr Křetínský is that he made his money in Central and Eastern European energy via a labyrinthine structure of companies.

This includes Eustream which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.

In the UK, Mr Křetínský has built up quite a portfolio in well-known brands through Vesa Equity Investment, a private firm which is registered in Luxembourg.

These include sizeable stakes in supermarket group Sainsbury's and the sportswear retailer Footlocker - as well as International Distribution Services, the parent company of Royal Mail.