Government Approves £3.6bn Takeover of Royal Mail by Czech Billionaire Daniel Kretinsky
The UK government has approved the £3.6 billion takeover of Royal Mail’s parent company by Czech billionaire Daniel Kretinsky, marking a significant shift in the landscape of the UK’s postal services. Kretinsky's investment firm, EP Group, has been granted the green light to acquire International Distribution Services (IDS), which owns Royal Mail, after agreeing to a series of "legally binding" undertakings.
Despite concerns about the long-term sustainability of the Universal Service Obligation (USO) and Royal Mail's profitability, the deal ensures that key elements of the UK postal services will remain intact. The government will retain a "golden share" in the company, which gives it control over any major changes to Royal Mail’s ownership, headquarters, and tax residency.
Ensuring Continuity of Royal Mail Services
One of the central conditions of the takeover is EP Group’s commitment to maintaining the USO, which ensures the delivery of letters six days a week and parcels Monday to Friday. This longstanding service guarantees that everyone in the UK receives affordable postal services, no matter their location. Daniel Kretinsky himself has promised to uphold the USO, "in whatever form it takes, for as long as I am alive."
Royal Mail has faced severe challenges in recent years, including the decline in letter volumes, with half the number of letters being posted compared to 2011 levels. As a result, the USO is under review, with potential changes to service frequency expected in the near future. The regulator, Ofcom, is currently evaluating proposals to reduce second-class deliveries to every other weekday, a move that could save up to £300 million annually.
Major Changes and Unprecedented Commitments
Under the terms of the deal, EP Group has agreed to significant commitments, including maintaining Royal Mail’s brand name and headquarters in the UK for the next five years. Additionally, the company will uphold Royal Mail's tax residency in the UK during this period, ensuring that its operations remain rooted in the country.
A crucial aspect of the deal is the agreement with unions, which will see workers receive a 10% share of any dividends paid out to Kretinsky. Furthermore, a new workers group will be formed, allowing employees to have a greater voice in the decision-making process and meet monthly with Royal Mail's directors.
Dave Ward, general secretary of the CWU union, praised the agreement, describing it as the "best opportunity" to secure Royal Mail’s future. However, he noted that discussions around the USO reform are ongoing and that a resolution is still some way off.
The Future of Royal Mail: A Pan-European Logistics Business
Kretinsky’s EP Group is not only focused on the UK market but also aims to expand Royal Mail’s capabilities across Europe. The company’s European parcel business, GLS, is highly profitable and made over £300 million in profit last year. This success has helped offset losses at Royal Mail, which has struggled with declining letter volumes and rising financial challenges.
By leveraging GLS’s parcel expertise, Kretinsky intends to build a pan-European logistics business. This could help Royal Mail regain its market share in the growing and profitable parcel delivery sector, potentially reversing its fortunes in the competitive UK logistics market.
Royal Mail’s Struggles and Ongoing Reform
Despite its rich history and importance as a national institution, Royal Mail has been facing financial challenges in recent years. The company has been fined £10.5 million by Ofcom for failing to meet delivery targets for first and second-class mail.
Royal Mail’s ability to adapt to changing market conditions is crucial for its survival. Jenny Hall, director of corporate affairs at Royal Mail, emphasized the importance of reforming the USO to reflect changing consumer trends. While Royal Mail continues to invest in improving performance, rising costs and financial losses are putting pressure on the company to raise postal prices.
In October, Royal Mail raised the price of a first-class stamp by 30p, bringing the cost to £1.65. This increase was implemented to help the company meet its financial obligations and sustain its operations.
A New Era for Royal Mail?
As the takeover of Royal Mail’s parent company is set to be completed early next year, all eyes are on Daniel Kretinsky and his plans for the UK’s postal service. With binding commitments to protect services and invest in modernizing the business, the future of Royal Mail under EP Group’s ownership appears to be on a more secure path. However, the ongoing challenges in the postal industry, including the reform of the USO and adapting to shifting consumer habits, will continue to shape the company's direction in the years to come.