Royal Mail takeover cleared by government

The government has approved the Czech billionaire Daniel Kretinsky’s £3.6 billion takeover of the Royal Mail owner International Distribution Services.

Kretinsky has agreed measures with the government to safeguard the important role that Royal Mail plays in the UK.

He will maintain the so-called universal service obligation, which includes the “one-price-goes-anywhere” service in the United Kingdom and that first class letters are delivered six days a week.

The billionaire investor has guaranteed not to raid the pensions surplus and to keep the brand name and Royal Mail’s headquarters and tax residency in the UK for the next five years.

He has also reached an agreement in principle with the CWU, which the union representing frontline Royal Mail workers said covered “job security, the governance of the company and a meaningful stake in the business for employees”.

The government, which reviewed the takeover using powers under the National Security and Investment Act, will keep a “golden share” in the company. This means it will have to approve any key changes to Royal Mail’s ownership, the location of its headquarters and tax residency.

IDS recommended the 370p-a-share takeover by EP Group, the conglomerate controlled by Kretinsky, in May but clearance by Westminster was delayed by the general election and the re-election of MPs to the select committee in the new parliament.

The deal still needs to be voted on by shareholders in IDS. The shares rose 3p, or 0.8 per cent, to 362p.

IDS has historically struggled to make money as its letters business has declined dramatically. The company has lobbied the government for changes to the universal service obligation as it seeks to expand in the fast-growing parcels market.

Last week Royal Mail was fined £10.5 million for failing to meet its first and second-class delivery targets in the 2023-24 financial year. The regulator Ofcom said its poor service was “eroding trust” in one of the country’s oldest institutions.

The company blamed its poor performance on its challenging financial position and delays to the ballot on a pay deal that followed the previous year’s industrial action. The regulator said it did not consider “either of these to be justifiable reasons for Royal Mail’s failure to provide the levels of service expected of it”.

In total, 74.7 per cent of first-class mail was delivered within one working day during the financial year, short of a target of 93 per cent, and 92.7 per cent of second-class mail was delivered within three working days, compared with a target of 98.5 per cent. It is the second year that the regulator has fined the company for breaches of its regulatory obligations.

Ofcom is reviewing the universal service obligation and has acknowledged that changes are needed if the service is to remain “sustainable, affordable and reliable”. It has proposed scrapping the delivery of second-class letters on Saturdays.

Despite its financial troubles, IDS reported last month that sales had increased by 10 per cent year-on-year in the six months to the end of September and that its operating loss had narrowed to £26 million, from a loss of £243 million in the prior year.

Kretinsky, 49, has become a well-known figure in the City by using cash generated from energy interests to buy up stakes in British companies.

The billionaire investor was born in Brno, when it was Czechoslovakia’s second city, and grew up under communism. He has said the experiences of his youth drove his support for free markets and informed his view that “it does not work at all when man thinks that everything can be planned”.

He trained as a lawyer and went on to work at J&T, a Slovakian investment group, which set the stage for his acquisitions of a 20 per cent stake in the company’s energy interests when they were spun out of the wider group in 2009.

EPH, the spun-off company, has grown by acquiring assets from Eon, the German energy group, Vattenfall, the Swedish power company, and Centrica, the parent company of British Gas.

The billionaire, estimated to be worth around $9 billion, has funded his foray into British stocks with the cash generated from his 94 per cent stake in EPH.

He has a 10 per cent holding in J Sainsbury, a 28 per cent investment in IDS and a 27 per cent interest in West Ham United, the Premier League football club. He is also co-owner and president of the Czech football club Sparta Prague.