Czech billionaire's acquisition of Royal Mail greenlit.
Government approval has been granted for the Czech billionaire's purchase of Royal Mail's parent company.
Approval has been secured for the £3.6bn acquisition by Daniel Kretinsky's EP Group following the agreement on “legally binding” commitments.
The state will keep a special “golden share,” necessitating its consent for significant alterations to Royal Mail's ownership, headquarters site, and fiscal domicile.
EP Group is also obligated to uphold the Universal Service Obligation (USO) of one-price-goes-anywhere, entailing the delivery of letters six days a week, from Monday to Saturday, and parcels from Monday to Friday.
The firm has pledged to uphold the USO throughout its ownership period of Royal Mail. Mr. Kretinsky earlier conveyed to the BBC his intention to respect the service in any form it might assume “for the duration of my life”.
Currently, the USO is being evaluated, with Royal Mail proposing to the regulatory body, Ofcom, that cutting second-class deliveries to alternate weekdays could result in annual savings of up to £300 million, providing the company with “a fighting chance”.
In September, the regulator announced it was examining these modifications, with a verdict expected the following year.
Dame Melanie Dawes, Chief Executive of Ofcom, conveyed to the BBC that there are “significant inquiries regarding the necessary services for the future”.
Considering the decline in letter volumes, “we must contemplate what is financially viable,” with Ofcom announcing it will release strategies next year “to ensure sustainability”.
The acquisition of International Distribution Services (IDS), the holding company of Royal Mail, is anticipated to finalize in the early months of next year. Including debts, the transaction places the firm's valuation at £5.3 billion.
Jonathan Reynolds, the Business Secretary, stated that although the decision to approve the deal rests with the shareholders, the settlement brokered by the government ensures the acquisition “will benefit the UK, the Royal Mail employees, and its customers significantly.”
Mr. Kretinsky mentioned that discussions with the government led to “unprecedented agreements and promises.”
He further stated that EP Group was on a “journey to transform Royal Mail into a contemporary postal service provider, offering top-notch services and products to its clientele.”
The terms accepted by EP Group encompass maintaining the brand name along with Royal Mail's head office and tax domicile in the UK for a duration of five years.
An arrangement has been secured in principle with labor unions, which encompasses employees receiving a 10% share of dividends distributed to Mr. Kretinsky and the creation of an employee group that will convene monthly with Royal Mail's directors, granting workers a more significant say in the operation of the company.
Dave Ward, the CWU union's general secretary, conveyed to the BBC that this was a “comprehensive agreement” and the arrangement represented the “optimal chance” for securing the future of Royal Mail.
He also mentioned that the union had “not reached any agreement” regarding USO reforms and that much progress was needed before such an outcome could be achieved.
IDS also controls GLS, a lucrative European parcel operation that generated more than £300m in profit last year. This compensated for the losses at Royal Mail, enabling IDS to announce a modest profit.
By integrating GLS's expertise in parcels into the UK and investing in external delivery lockers, Mr. Kretinsky aims to establish a comprehensive pan-European logistics network.
The expectation is that this strategy will allow Royal Mail to regain its lost market share from recent years in the lucrative and expanding parcel delivery sector.
According to the Sunday Times Rich List, Mr. Kretinsky's net worth is valued at £6bn.
Mr. Kretinsky, who owns 27% of West Ham United football club and a 10% stake in Sainsbury's, operates businesses including a gas transmission service. This service continues to supply significantly reduced quantities of Russian gas to Europe, with transactions authorized and paid for by the EU.
At the start of the year, the acquisition underwent scrutiny under national security legislation, given Royal Mail's status as critical national infrastructure.
However, addressing MPs in November, Reynolds described Mr Kretinsky as a “legitimate business figure,” stating that his purported connections to Russia were scrutinized and deemed inconsequential when he emerged as the company's largest shareholder almost two years prior.
Royal Mail, separated from the Post Office and privatized ten years ago, has experienced a decline in performance lately, resulting in significant financial losses.
The quantity of letters mailed in the UK has significantly decreased, with only half the amount sent relative to 2011 figures.
Recently, Royal Mail received a £10.5m penalty from the regulatory authority Ofcom due to not achieving the set delivery goals for first and second class mail.
Dame Melanie Dawes of Ofcom communicated to the BBC that it falls upon the new owners to implement enhancements, and she assured that the regulator would decidedly keep Royal Mail accountable.
Jenny Hall, the corporate affairs director at Royal Mail, communicated to the BBC that the firm is investing in enhancing its performance, highlighting the “critical need” for the USO to evolve in line with consumer behaviors.
She further stated that Royal Mail is committed to maintaining the lowest possible postage fees, yet the prices must “align with the actual costs of providing the service”.
The cost of a second-class stamp, now 85p, is controlled by Ofcom, linking the annual increase Royal Mail can apply to inflation.
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