Royal Mail owner agrees to $4.6 billion takeover by Czech billionaire Kretinsky

By Yadarisa Shabong

(Reuters) -The owner of Britain’s Royal Mail has agreed to a 3.57 billion pound ($4.55 billion) takeover by Czech billionaire Daniel Kretinsky, it said on Wednesday, in a take-private deal of one of the world’s oldest postal firms.

The offer valued International Distributions Services, owner of Royal Mail and international parcels network GLS, at 370 pence per share.

Shares rose 3.5% to 332 pence in morning trading, well below the offer price, suggesting possible uncertainty over the deal, which is poised for intense government scrutiny during an election year, with a vote scheduled for July 4.

Royal Mail, whose iconic red post boxes with the Royal Crest dot the country, has struggled with labour strikes, competition and loss of market share. That has pressured its shares, which have sunk more than 45% from a May 2018 record intraday high of 607.7 pence.

It was privatised in 2013 in a massive state selloff at an initial public offering price of 330 pence a share.

IDS has negotiated a package that includes its ‘one-price-goes-anywhere’ postal service six days a week, maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.

In a rare interview, Kretinsky said the company needed investment. “It is important for logistics companies not to miss this out-of-home delivery wave, which means they need to be ready to invest now,” Kretinsky said.

“We believe that if the group doesn’t respond properly on the out-of-the-home solutions it may have a detrimental impact on its market share. And specifically in the UK, any shrinkage of the market share would be fatal.”

Kretinsky has, through his companies, invested in a variety of other holdings, including in West Ham United Football Club and last month agreed a deal for a 20% stake in Thyssenkrupp’s steel business.

He also has a string of retail investments, including in France’s Fnac Darty, Germany’s Metro and a near 10% stake in Sainsbury’s. In France, Kretinsky is pursuing a plan to invest in and take control of distressed IT firm Atos.

The 48-year old lawyer turned investor said taking over the owner of the Royal Mail would allow management to focus on longer-term strategy better than as a public company.

He also flagged that he was considering ways, if the deal is completed, for UK citizens to be able to invest in Royal Mail.

UNION RECOGNITION

Royal Mail’s labour unions will continue to be recognised for at least five years after the deal’s completion, Kretinsky’s investment vehicle EP Group said.

The opposition Labour Party, forecast to win Britain’s election, “will ensure these (assurances) are adhered to,” said Jonathan Reynolds, the party’s business spokesman.

“The scale of the commitments we are offering to the company and the UK Government reflect how seriously we take this responsibility,” said Kretinsky.

Kretinsky, IDS’ biggest shareholder with a 27.6% stake, has said private investment in Royal Mail was crucial, given its poor service delivery, slow transformation and increasing competition.

Finance Minister Jeremy Hunt has said any takeover bid for Royal Mail would be subject to “normal” national security scrutiny but not be opposed in principle.

“The big question is which political party is going to be in power to decide,” AJ Bell analyst Dan Coatsworth said.

In 2022, Britain did not intervene in Kretinsky’s plan to boost his stake in IDS to more than 25%.

RESET RELATIONS

The CWU, Royal Mail’s largest union, said it would meet with EP next week to seek a re-set in industrial relations, restoration of postal services, and commitments on Royal Mail’s future.

“We will also be directly engaging with the Labour Party and other stakeholders to call for a new model of ownership for Royal Mail,” it said.

Royal Mail, which employs more than 130,000 people across the UK and whose postal service is 500 years old, has been trying to transform itself into a parcel-led business as letter volumes have shrunk.

EP Group raised its bid earlier this month for the shares Kretinsky does not already own in IDS to 370 pence per share after a previous 320 pence bid was rejected in April.

($1 = 0.7843 pound)

(Reporting by Yadarisa Shabong in Bengaluru and Kate Holton in London; Additional reporting by Anousha Sakoui. Editing by Sohini Goswami, Bernadette Baum and Jane Merriman)