If ratified, the deal will take the 508-year-old delivery service into foreign ownership for the first time since it was set up by King Henry VIII, and off the London stock market 11 years after it was privatised.
“The Czech’s in the post” was the glib headline in the media yesterday as the news that the board of Royal Mail’s owner IDS revealed it has agreed in principle to a takeover deal by EP Group at £5billion.
The agreement is made up of £3.5bn in cash plus assumed debts but is still subject to shareholder approval, and there are some dissenters while it also needs to be approved by whichever government is in power following the July 4 general election. In a statement released by the London Stock Exchange early yesterday, 29 May, the International Distribution Services board and the group owned by Czech billionaire Daniel Křetínský confirmed they had reached a cash deal for the remaining 72.4% of shares he doesn’t already own.
The takeover includes certain provisos, including EB Group agreeing to uphold RM’s legally-binding universal service obligation to deliver post six days a week across the UK for the same price – however, this assurance is only for the next five years.
The Greeting Card Association (GCA) acted swiftly once the details were released yesterday about the offer for Royal Mail and, in a press release widely covered by the media at large, ceo Amanda Fergusson said: “Our members are rightly concerned that the undertakings being proposed by EP Group in relation to its takeover of Royal Mail are inadequate and short-lived.
“A first-class six-day service without long-term commitments on affordability risks leaving small businesses and consumers picking up the cost of this proposal.
“What’s more, undertakings that expire after a single five-year parliamentary term will not inspire confidence from small businesses and consumers that the service is being protected for the long-term.
“Five-year commitments to support an institution with over 500 years of history appear to fall short. The government and regulator must insist on lock-tight, long-term undertakings on affordability and reliability and the protection of our national service before approving this deal.”
The offer at 370p per share takes on assumed debts for IDS, which employs over 150,000 across its subsidiaries, including Royal Mail Group, Parcelforce, the Netherlands-based parcel service GLS and a Canadian logistics and parcels arm, and makes commitments to retain the name, brand, UK headquarters and UK tax residency of the British operation, as well as protections for employee benefits and pensions.
But it is not a done deal – shareholders get to vote at the IDS annual general meeting in September, and business secretary Kemi Badenoch, who has yet to meet the billionaire behind the move, has the power under the National Security & Investment Act to scrutinise and potentially block the takeover.
And, although IDS shares rose 11p yesterday to 332p, that’s 10% below the offer price so business experts suggest there is a significant amount of uncertainty in the markets that the deal will be concluded.
Calling his company a “patient, supportive investor” Daniel added: “IDS, and Royal Mail in particular, form part of the national infrastructure of the countries they operate in. More than that, Royal Mail is part of the fabric of UK society and has been for hundreds of years.
“The EP group has the utmost respect for Royal Mail’s history and tradition, and 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.
“We will support the business in the next critical phase of its transformation and beyond, providing our experience and financial resilience to support the management team.”
However, although IDS chairman Keith Williams said: “Both parties are acutely aware of their responsibilities to IDS, and particularly to the unique heritage of Royal Mail and its obligations as the designated universal service provider of postal services in the UK,” there is no guarantee of what happens to Royal Mail and the uso – which requires an act of parliament to change either its conditions or the provider.
In addition to the queries raised by the GCA, the sale has already attracted heavy scrutiny, with senior politicians and unions voicing concerns over the future of the postal service.
Minister Kemi Badenoch met IDS bosses earlier this month for talks on the initial offer at £3.2bn, which was then increased to £3.5bn, and underlined the need to protect services for the vulnerable, those in remote areas, and small businesses.
And on Wednesday, as the news of the agreement broke with a potential change of government looming through the general election, shadow business secretary Jonathan Reynolds said: “Royal Mail is an iconic British institution with a unique place in our society and infrastructure. Labour will take the necessary steps to safeguard its undeniable identity and place in public life.
“These assurances are welcome that Royal Mail will retain its British identity and safeguard its workforce with no compulsory redundancies.”
On the staffing side, the Communication Workers’ Union is not keen on Royal Mail falling into foreign hands, but neither it is happy with the way the business is currently being run.
General secretary Dave Ward said yesterday: “We do welcome some of the commitments that have been made but the reality is postal workers across the UK have lost all faith in the senior management of Royal Mail and the service has been deliberately run down.”
He added the union is to meet with EP Group next week and “call for a complete reset in employee and industrial relations, the restoration of postal services and further commitments on the future of the company”.
And, indicating the union expects a Labour election win, he said the CWU will also be “directly engaging” with the party 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”.
The takeover comes at a crucial time for the delivery service with Ofcom yet to release the outcome of The Future Of The Postal Service review in which the industry watchdog and RM originally proposed losing Saturday letter deliveries altogether, to almost universal condemnation including from prime minister Rishi Sunak.
This was then dialled back to keeping a six-day first-class delivery while cutting second class to two or three days a week. And last week Ofcom launched an investigation into Royal Mail’s failure to meet its delivery targets in 2023-24, the second year running it has significantly under-performed, with just 74.5% of first-class letters arriving within one day against the legal obligation of 93%, and only 92.4% for second class when 98.5% should be delivered within three working days.
Amanda added: “Any future reform of our delivery service must be dependent on Royal Mail meeting the performance targets they’ve already signed up to.
