Royal Mail is at risk of being broken up in just three years after the postal service accepted a £3.6bn takeover offer from a Czech billionaire.
The board of parent company International Distributions Services (IDS) on Wednesday said it had recommended an offer of 370p per share from Daniel Kretinsky.
The deal is subject to a number of legal undertakings, including a pledge that the tycoon will not split the group’s struggling letters business from GLS, its profitable parcels division.
However, that guarantee is only valid for three years, raising the prospect that the postal service could soon be carved up. It also marks the first time Royal Mail will fall into foreign ownership in its 500-year history.
Analysts have speculated that the tycoon could look to merge GLS with PostNL, the Dutch postal operator in which he also owns a major stake.
Mr Kretinsky is already the largest shareholder in IDS through his company EP Group. He is also an investor in Sainsbury’s and West Ham Football Club.
Alexander Paterson at Peel Hunt said: “The truth is there’s not enormous commercial logic to having Royal Mail and GLS owned by the same group, and so it’s quite possible that it would get broken up.”
Mr Paterson added there could be pressure on the next government to seek longer-term guarantees, though he added this was unlikely to derail the bid.
Another industry source said: “The Government should be thinking long-term, not just one election cycle. If you were cynical you’d say this will blow up on the next government’s watch.”
Sources close to Mr Kretinsky, known as the “Czech sphinx”, insisted he had no intention of breaking up the business.
They pointed to other legally binding undertakings to not strip IDS of its assets or load the company up with debt, which they said would also ensure the group stays together.
Nevertheless, the limited length of the guarantees has fuelled concerns about Mr Kretinsky’s plans for Royal Mail as the historic postal company grapples with a sharp decline in letter sending.
Kemi Badenoch, the Business Secretary, has called for a meeting with the billionaire in anticipation of the potential deal, with ministers insisting that businesses and vulnerable customers are protected.
Shadow business secretary Jonathan Reynolds has also sought assurances about the impact of the takeover and it is understood that Labour is opposed to a break-up of the group.
Labour leader Sir Keir Starmer told reporters: “I’m glad that some progress seems to be being made on Royal Mail and I hope further progress can be made so that Royal Mail can be safeguarded with a secure future.
“I’m encouraged by what has been said so far about job security and the approach that we’ve taken. Obviously it’s early days, but I do think this is a step in the right direction.”
The Government is currently in purdah after Rishi Sunak called an election on July 4. Any decision to approve the deal is likely to fall to the next administration.
But his swoop on Royal Mail has sparked political concerns given the key role the company plays in British life.
Jeremy Hunt, the Chancellor, has said any potential takeover will be scrutinised under national security laws to ensure it does not pose a threat to critical infrastructure. It is understood that Labour would also trigger a national security review if it wins the election.
Mr Kretinsky was previously subject to a national security investigation when increasing his stake in the company above 25pc in 2022, though this was ultimately approved.
The bid has also drawn criticism from the Communication Workers Union (CWU), which represents postal workers.
Dave Ward, secretary general of the CWU, called for a “complete reset” of industrial relations as he said he will meet with EP Group next week.
Speaking on BBC Radio 4’s Today programme, he said: “I think it’s about testing Mr Kretinsky as to whether he’s got any plans for investing in the workforce, investing in growth strategies for the company, or whether his intentions are purely to asset strip the company.”
EP Group made a number of other legally-binding undertakings to the Government as part of the bid.
These include maintaining key services under Royal Mail’s universal service obligation for the next five years, such as the one-price-goes-anywhere system and Saturday deliveries for first class post.
Mr Kretinsky has agreed to maintain the Royal Mail brand, protect pensions and keep the company headquartered and tax resident in the UK and continue to recognise its unions.
He has also pledged not to significantly increase the company’s debt as a result of the transaction or through payouts.
These undertakings will be valid for five years following the completion of the deal, which requires approval from shareholders at the company’s annual meeting in September.
The Business Secretary could seek redress through the civil courts should any undertakings be breached.
In a statement, Mr Kretinsky said: “The EP Group has the utmost respect for Royal Mail’s history and tradition, and 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 scale of the commitments we are offering to the company and the UK Government reflect how seriously we take this responsibility, to the benefit of IDS’ employees, union representatives and all other stakeholders.”
Keith Williams, chairman of IDS, said: “IDS has the potential to become a leading international logistics player.
“Both the IDS Board and EP are acutely aware of their responsibilities to IDS and particularly to the unique heritage of Royal Mail and its obligations as the designated Universal Service Provider of postal services in the UK.
“The IDS Board has negotiated a far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards.”
Mr Kretinsky’s offer consists of 360p a share in cash, plus a final dividend of 2p per share and a special dividend of 8p per share. It values IDS at £3.57bn, or almost £5.3bn once debt is included.
The tycoon has secured financing from BNP Paribas, Citi and JP Morgan for the deal, which is being carried out alongside his Czech-based investment firm J&T.
IDS chief executive Martin Seidenberg stands to make around £264,000 from the takeover, while chairman Keith Williams is in line for roughly £210,000.
It comes as Royal Mail campaigns for an overhaul of the universal service obligation (USO) amid concerns outdated regulations have left it financially unsustainable.
Royal Mail has submitted proposals that would see it deliver second-class mail just three times a week, though six-day deliveries would be maintained for first-class post.
Mr Kretinsky has made a contractual commitment to support these proposals and not to put forward any other plans for reform until Ofcom has carried out its review.
Royal Mail lost a further £348m in the 12 months to March as letter volumes continue to decline, though this was down from a £1bn loss the previous year.
The hefty losses, combined with crippling strikes in recent years, have sparked a slump in IDS’s share price that left it vulnerable to a takeover.
Shares in the company rose roughly 4pc after the deal was announced but remained significantly below the offer price at 335p.
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