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“For multiple reasons – the heritage, the spirit of the company – it’s good if every British citizen can invest in the shares,” Daniel Křetínský told the Sunday Times a year ago, seemingly ruling out a takeover bid for International Distributions Services, the group that owns the Royal Mail. Now, from the position of 27% ownership, he has made an offer.
Czech billionaires, like everybody else, are free to change their mind, but this U-turn requires a better explanation than the one Křetínský’s privately owned EP Group offered on Wednesday. The new line is that Royal Mail “would benefit from being able to take a longer-term view” and that EP is “prepared to support this iconic business as it transforms and rebuilds into a modern postal operator”.
Prepared to support? What does that mean? Nobody expects an early announcement of a non-binding takeover proposal to contain a full business plan, but Křetínský will have to talk hard numbers and cast-iron financial commitments if he intends to continue a pursuit that would require a thumbs up from the government. Wednesday’s woolly version didn’t even commit EP to accelerating capital investment at Royal Mail beyond levels that IDS could achieve under its own steam.
Nor did it address another burning question: would the two halves of IDS – Royal Mail, now loss-making, and GLS, the very profitable Amsterdam-based parcels business that operates outside the UK – be kept together?
IDS itself has threatened to do the splits in the recent past (usually during quarrels with the CWU trade union), but the mechanics have always looked tricky as a public company because Royal Mail would have to be left with sufficient financial firepower to continue modernisation. Away from the public markets, a split would be more do-able – but, crucially, the question of Royal Mail’s financial dowry, or similar, would be decided with less outside scrutiny.
As it happens, Křetínský addressed the split idea a year ago – he argued it didn’t make sense – but, as we’ve seen, his thinking can move on.
On day one on Wednesday, IDS rejected 320p, or £3.1bn, on conventional financial grounds. The offer, it said, represented a significant undervaluation given that new management is in place, a modernisation programme is progressing at Royal Mail and the regulator is reviewing the terms of the universal service obligation, the requirement to deliver to every address in the UK six days a week.
But, if Křetínský makes a bid that cannot be batted away simply on price, the debate becomes wider. Who is the right owner of what is – still – an important piece of national infrastructure?
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A generation ago, two-thirds of the English water industry was taken private, mostly by overseas bidders and private equity houses. It created “the predisposition of thinking of water companies as financial assets”, as one former regulator, Jonson Cox, has put it. The current state of the waterways obviously has more complicated causes than the removal of stock market listings, but the resulting loss is definitely part of the story. Ties with customers were loosened; visibility became foggier.
That, more or less, is what Křetínský himself seemed to be suggesting a year ago about Royal Mail in his reference to heritage, spirit and a listing on the UK public market. It was a good point at the time, and remains so. Many European countries, like the UK, have privatised or part-privatised their postal services but none has let them slip away to private ownership from abroad. The default position on Křetínský’s approach to Royal Mail should be deep scepticism.
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