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Royal Mail owner approves takeover bid from Czech billionaire

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A Royal Mail worker loads vans at a delivery office in Tonbridge, Britain, on May 29.Chris J Ratcliffe/Reuters

It was established by King Henry VIII to send messages to members of the royal court, and now, for the first time in its 508-year history, Britain’s Royal Mail is on track to have a foreign owner.

Royal Mail’s parent company, International Distribution Services plc, announced Wednesday that it had accepted a takeover bid from Czech billionaire Daniel Křetínský. The offer values IDS at £5.3-billion ($9.2-billion).

The deal still requires the approval of government regulators, but if it goes ahead, a British institution will fall into the hands of a man some have called the “Czech Sphinx” because of his aversion to publicity.

Mr. Křetínský, 48, has made a fortune by going against the flow, especially when it comes to investing in fossil fuels.

Over the past decade, as energy companies began unloading dirty assets to cut down on carbon emissions, his company, Energetický a průmyslový holding, or EPH, went on a buying spree. EPH has accumulated US$17-billion worth of assets and now owns one of Europe’s largest collections of coal-fired power plants, as well as a pipeline that brings Russian gas to Western Europe.

Environmental groups have labelled EPH one of the biggest polluters in Europe and have called Mr. Křetínský a “fossil hyena.” And yet, EPH returned a profit of US$7.8-billion last year, and Mr. Křetínský’s personal wealth has been pegged at US$9.2-billion by Forbes magazine.

He has insisted that EPH is transitioning away from coal and is providing a critical service by investing in unpopular, but necessary, assets until they can be replaced by renewables.

His environmental track record caused more controversy in 2018 when he bought a 13-per-cent stake in France’s Le Monde newspaper. Journalists feared a creeping takeover and accused Mr. Křetínský of trying to buy a platform to express his views. He finally sold the stake last year.

He has since gone on to acquire interests in companies as varied as West Ham United soccer team, British grocery store chain Sainsbury’s and French grocer Casino.

Buying into Royal Mail, which was privatized in 2013, could be one of Mr. Křetínský’s biggest challenges yet. The company has been beset for years by labour unrest and mounting financial losses.

It’s obliged by law to deliver mail to every address in the U.K., six days a week and for the same price. Royal Mail executives have been arguing for years that the requirement is outdated and have been seeking to cut some letter deliveries to three days a week. And they’ve blamed the obligation for the company’s poor financial performance.

In the latest fiscal year, ended March 31, Royal Mail lost £348-million and faced a series of strikes by postal workers. Last year IDS wrote down the value of Royal Mail by £539-million, citing the impact of the strikes and the “current risk backdrop.”

By contrast, IDS’s international parcel delivery arm, General Logistic Systems, or GLS, has fared much better, and there has been speculation that Mr. Křetínský might merge it with a Dutch parcel service, PostNL, that he partially owns. GLS delivers packages across Europe and North America and reported an operating profit of £320-million last year.

On Wednesday, Mr. Křetínský promised no immediate changes to Royal Mail or GLS. He vowed to keep IDS based in the U.K. and recognize the unions representing postal workers. He also said he wouldn’t seek any changes to Royal Mail’s delivery obligation.

However, those commitments are only for five years, and a further promise not to sell GLS has a three-year expiration date.

Royal Mail “is part of the fabric of UK society and has been for hundreds of years,” Mr. Křetínský said in a statement, adding that his investment group “has the utmost respect for Royal Mail’s history and tradition.”

“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 takeover comes in the middle of a general election in Britain that is widely expected to result in a change in government. If the polls are correct, voters will elect a Labour government on July 4, ending 14 years of Conservative rule.

The Labour Party has called for greater assurances that Mr. Křetínský will keep Royal Mail a U.K.-based company that pays taxes in the country.

“These assurances are welcome that Royal Mail will retain its British identity and safeguard its workforce with no compulsory redundancies,” said Labour MP Jonathan Reynolds. “Labour in government will ensure these are adhered to.”

Analysts said winning government approval for the takeover remained a key obstacle.

“Our expectation is that an appropriate review of the proposed takeover could be lengthy,” said Gerald Khoo of London-based Liberum Capital. “Our base case remains that the deal gets blocked by the government.”

Shareholders also seem wary. IDS shares traded around 334 pence on the London Stock Exchange on Wednesday, below Mr. Křetínský’s all-cash offer of 360 pence.

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