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Shareholders of Royal Mail owner hit out at Křetínský’s ‘insulting’ approach

Leading shareholders in Royal Mail’s parent company have criticised Czech billionaire Daniel Křetínský’s £4.5bn approach, with one large investor calling his initial offer an “absolute joke”.

International Distributions Services said on Wednesday that it had recently rejected an approach from Křetínský’s investment group that valued the former British postal monopoly at 320p a share.

IDS called the timing of the bid, a nearly 50 per cent premium to the company’s undisturbed share price, “opportunistic” and said it substantially undervalued the business.

Some of IDS’ largest investors denounced the offer, warning that the dealmaker dubbed “the Czech Sphinx” was taking advantage of the FTSE 250 company’s weak share price.

“The offer is an absolute joke and I suspect he knows that,” one leading shareholder told the Financial Times. He noted that GLS, the company’s profitable European logistics business, is worth up to 400p on its own. “So 320p for the entire group including GLS is insulting,” he added.

Another shareholder said the offer was “nowhere near an acceptable or interesting level and the company is worth significantly more than that”.

 Daniel Křetínský
Daniel Křetínský’s £4.5bn approach was called ‘an absolute joke’ © Richard Cannon/FT

The comments come as Křetínský, the largest shareholder in IDS with a 27.5 per cent stake, confirmed his non-binding offer through his EP Group holding company after the Financial Times revealed his interest in the postal group.

Backed by record profits from EP’s energy holdings, Křetínský has spent several years striking deals across Europe to diversify the group’s portfolio by pushing into unloved retail, logistics and media companies. He’s been most active in France, Germany and the UK, where he has built stakes in Sainsbury’s and West Ham United football club.

IDS’s shares closed at 214.20p on Tuesday before news of the approach emerged, making the offer a near-50 per cent premium. The group’s stock has been sliding over the three years, with the shares last at 320p in May 2022.

Undeterred by the initial rejection, EP Group said it recognised that the Royal Mail was an “important national asset that would benefit from being able to take a longer-term view”.

It said it was prepared to support the “iconic business” as it transformed and rebuilt into a “modern postal operator.”

Křetínský, a lawyer-turned-energy tycoon, now has until May 15 to make a formal offer for the mail delivery group, and he is expected to return with another bid, according to a person familiar with the matter.

While EP Group also holds some 30 per cent of PostNL, the Netherlands’ legacy postal service, a potential takeover of IDS would mark the first logistics business that Křetínský controlled.

A person familiar with his thinking said that Křetínský did not plan to break up the group, and rather wanted to make it the core of a new pillar of his growing business empire.

Křetínský is known to be an aggressive dealmaker in takeover battles outside the UK: he made an unsuccessful takeover attempt in Germany for the retailer Metro, while in France he has gained control of the retailer Casino after striking a deal to bail out the business.

kretisnky investments flowchart

EP Group’s offer for the Royal Mail comes at a challenging time for the UK mail service, with questions raised around its future and the outlook for its much more highly-valued parcel shipping business.

Royal Mail faces fundamental challenges relating to the high costs of its comprehensive, UK-wide delivery service while it adjusts to a sharp drop in the volume of letters it handles.

“If the last 10 years are any guide, the risk of [the turnaround’s] not coming through are high,” said Alexander Paterson, transport analyst at Peel Hunt.

Even if successful with its bid, EP Group will need to navigate both a heavily unionised workforce and its duty to deliver everywhere in the UK, six days a week, for the same flat fee.

The Communication Workers Union said: “Handing over the ownership of one of the UK’s most prestigious institutions to a foreign equity investor cannot be right.”

The company expects to deliver roughly 7bn letters this year, almost a third of what it delivered two decades ago. Royal Mail holds a share of about 25 per cent of the UK parcels market by revenues, topping the likes of Amazon Logistics, DPD and DHL.

Frank Proud, parcels market analyst for Apex Insight, said the operator also faced additional hurdles: “They’ve got disadvantages inasmuch as they can’t put big stuff into the mail network and their labour costs are higher,” he said.

Royal Mail, with its 85,000 delivery staff, accounted for 62 per cent of IDS’s revenue in the year to March 2023, with the remainder of revenues coming from GLS, its Netherlands-based parcel-delivery service. However, GLS generated almost £300mn in operating profits for the year, while Royal Mail reported an operating loss of more than £1bn.

IDS could “undoubtedly” be broken up into Royal Mail and GLS, said Paterson at Peel Hunt, who suggested that 360p per share — 40p above EP Group’s offer — would be a good “take-out price”.

For Křetínský to take over IDS, he will have to work with UK government officials, given that the company’s activities fall into a strategically important sector.

Line chart of Share price, pence showing IDS shares jump after indicative approach

While Ofcom does not have powers to review or block a takeover of Royal Mail, ministers can block investments or require changes to a transaction in order to protect the UK’s interests under the government’s national security powers.

Křetínský has been has been spending time meeting members of parliament and ministers, helped by former Labour MP Chuka Umunna, one of his bankers on his bid at JPMorgan.

People close to both Křetínský and IDS said the government had chosen not to intervene in 2022 when it considered the billionaire’s plan to raise his stake in IDS to more than 25 per cent, suggesting he was not seen as high risk.

The government has faced calls to introduce a fast track process under the national security regime for buyers such as Křetínský, who have already been cleared in earlier national security reviews. But the Cabinet Office said on Thursday it was not considering launching such a system and would continue to assess each transaction on a case-by-case basis.

A representative for Křetínský declined to comment.

Additional reporting by Arash Massoudi

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