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- Royal Mail’s parent company agreed in May to a £3.6bn acquisition by EP Group
- Pat McFadden, Chancellor of the Duchy of Lancaster, has approved the deal
Daniel Kretinsky’s acquisition of Royal Mail is getting closer to realisation after gaining national security clearance from the UK Government on Friday.
Pat McFadden, the Chancellor of the Duchy of Lancaster, has approved the takeover under the National Security and Investment Act.
Royal Mail’s parent company, International Distribution Services (IDS), agreed in May to a £3.6billion acquisition by Kretinsky’s EP Group.
The proposed deal has generated considerable controversy, partly because of Royal Mail’s role in the UK’s communications infrastructure and Kretinsky’s commercial ties in Russia.
The Czech billionaire’s interests include a 49 per cent holding in EUStream, which transports gas from Russia to Central and Eastern Europe via Slovakia.
Under a contract with Gazprom lasting until 2028, EP receives income from the state-owned energy giant for supplying Russian gas across Europe. The arrangement is legal under European Union laws.
Approval: Daniel Kretinsky’s acquisition of Royal Mail is getting closer to realisation after gaining national security clearance from the UK Government
The Cabinet Office said EP Group’s IDS acquisition is ‘subject to the parties ensuring that Royal Mail Group remains able to and continues to provide services that are in support of UK national security’.
Shareholders in IDS now need to vote in favour of the deal before it can be finalised.
Besides security concerns, the transaction has come under heavy criticism as it is being financed with £3billion of high-interest loans and IDS already has £2billion in debts.
To help secure approval, Kretinsky has made numerous guarantees regarding the postal service’s operation.
These include pledges to uphold the universal service obligation (USO) to deliver letters six days a week to all UK addresses for the price of a stamp.
In addition, the UK Government will hold a ‘golden share’ in IDS that will prevent the Royal Mail’s branding, headquarters and tax residency from changing without its consent.
And there will be no compulsory redundancies until the end of 2025 or raid on the pension surplus, whilst Royal Mail staff have been promised a 10 per cent share of any dividends paid to Kretinsky.
However, the postal service’s finances have come under significant strain due to a slump in letter deliveries and the high costs of abiding by the USO whilst maintaining a large labour force.
Its record of service has also attracted scrutiny; regulator Ofcom fined the company £10.5million last week for missing delivery targets for first and second-class mail.
Many prominent British firms have succumbed to overseas ownership in recent years, driven by cheap valuations relative to their international peers.
Cybersecurity specialist Darktrace, music rights investor Hipgnosis Songs Fund, and energy investment group Smart Metering Systems were all bought by private equity firms earlier this year.
Investment platform Hargreaves Lansdown, soft drinks maker Britvic, and packaging provider DS Smith have also agreed to billion-pound takeover deals.
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