What will the acquisition of Royal Mail mean for customers and postal workers? | royal mail

The billionaire sometimes known as the Czech Sphinx appears to be on the verge of becoming the first person to buy Royal Mail in its 500-year history.

A sale would mark a milestone in the history of a company that was privatized just over a decade ago but whose history stretches back to Henry VIII’s Postmasters.

So what will an acquisition mean for customers and officials and what can we expect from the Czech Sphinx?

Who is Daniel Křetínský?

Křetínský is a law graduate from the city of Brno who has become one of the richest people in the Czech Republic. He has investments across Europe, spanning industries such as energy, media, retail and sport, all within his holding company EP Group. His nickname derives from his supposedly inscrutable approach to business.

In 2020, it turned its attention to the United Kingdom with its investment vehicle Vesa, a subsidiary of the EP Group, taking a 3% stake in the J Sainsbury supermarket chain. By the end of the same year, Vesa had also become the largest investor in the Foot Locker sneaker chain and had begun to increase its stake in Royal Mail. The following year, he and his business partners bought 27% of West Ham United Football Club, generating great excitement among fans about the impact his riches could have on the fortunes of the mid-table east London club.

As of 2022, Křetínský had acquired a 27.5% stake in Royal Mail through Vesa. He now proposes privatizing the business, becoming the first private individual to take the reins of the British postal service.

Why do you want it?

The answer is not obvious, given that the EP Group itself has lamented the “weak financial performance, poor service delivery and slow transformation” of the Royal Mail. Křetínský is clearly convinced that it can provide the necessary investments to modernize the company and return profitability. He says Royal Mail can become one of Europe’s largest logistics companies but “must accelerate its transformation and modernization investments to keep up with the competition”.

The key to future profitability is something called universal service obligation, which requires the postal service to meet certain obligations by act of parliament. The company has asked the government and media regulator Ofcom to allow it to relax requirements, including removing daily letter deliveries.

The postal union, the Communication Workers Union (CWU), has recently softened its opposition to this plan, indicating that Royal Mail could soon get the green light to save £300 million.

What is the role of the government?

IDS shareholders have to approve the deal, but that is unlikely to be a problem given that the board of directors has recommended it and Vesa already owns more than a quarter of the company. However, the acquisition could be scrutinized and even blocked under the National Security and Investment Act 2021, given that the postal service is an important piece of British infrastructure. Chancellor Jeremy Hunt has indicated that state opposition is unlikely. The Labor Party has said it welcomes the assurances given by Křetínský and will ensure they are fulfilled if he wins the general election.

But in theory, the government could “request” the takeover for scrutiny and prevent it, if it is deemed to go against the UK’s national security interests. The Czech Sphinx hopes to solve that riddle by issuing a series of undertakings, some required by the IDS as a condition of accepting the offer, in the hope of securing the blessing of the British government. But they all have time limits.

What promises has Křetínský made?

For five years after any deal is completed, Royal Mail must comply with a number of conditions. These include the company continuing as a UK universal service provider, with requirements set by the government and Ofcom after considering proposed changes to the obligation.

The list of legally binding commitments includes a promise that the Royal Mail brand will be retained, including the royal “cipher”, the monogram seen on the side of mailboxes. IDS and Royal Mail will retain their headquarters and tax residence in the UK and must also continue to recognize their unions, the CWU and Unite.

The company must not transfer cash to the parent company unless its debt is below a certain level, nor can it use any pension plan surplus to reward shareholders.

IDS has also obtained contractual commitments, including that the EP supports the postal company’s current proposals for universal service and does not present any alternative plan. The EP has promised not to cut salaries or bonuses for a minimum of two years and will support Royal Mail’s planned new pension scheme for the same period.

What happens after the period ends?

The EP Group can do whatever it wants once the periods covered by its promises have ended. In theory, you could try to end recognition of postal worker unions, eliminate the actual figure, or even do something as crazy as changing the company’s name to Consignia.

Any possible drawbacks?

Debt could be a problem. Royal Mail has existing debts worth £1.7bn. To buy out the remaining shareholders for £3.57 billion, Křetínský will borrow another £2.3 billion, meaning the group’s total debt will increase. Sources close to the company say any additional leverage will not affect the company’s investment rating.

The EP Group will also have to carefully manage its relationship with the CWU. Royal Mail workers held a series of strikes throughout 2022 and 2023. The negotiations will be key to the company’s future performance. If Křetínský’s plans spell bad news for postmen and their jobs, it could lead to new hostilities.

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