International Distribution Services (IDS), the parent company of Royal Mail, has this morning [29 May 2024] submitted paperwork officially recommending a cash offer for the takeover of the company, made by Czech billionaire Daniel Křetínský.
The offer was submitted by EP UK Bidco Limited – a newly formed company owned indirectly by EP Corporate Group and J&T Capital Partners. If the deal is approved, IDS shareholders will receive £3.70 per share, 2p of which representing the final dividend in respect of the financial year ended 31 March 2024 and 8p of which being a ‘special dividend’ should the acquisition become unconditional.
This values IDS’ entire issued, and to be issued, ordinary share capital at approximately £3.57 billion, implying an enterprise value of £5.28bn.
IDS chair Keith Williams commented: “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 (DUSP) 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. These cover the provision of the one-price-goes-anywhere Universal Service Obligation (USO) – including first class letters still delivered six days a week, the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.”
Royal Mail has been under a great deal of scrutiny recently, both from the scandal surrounding the prosecution of over 900 sub-postmasters between 1999 and 2015, and from Ofcom, which has opened an investigation into the company’s failure to meet its delivery targets for the second consecutive year.
As the DUSP, Royal Mail is required by the communications regulator to meet specific targets for deliveries. It must deliver 93% of first class mail within one working day of collection – of which it only managed 74.5% in 2023/24 – and 98.5% of second class mail within three working days of collection – in which it also fell short with a success rate of 92.4%.
In May 2023, Logistics Manager reported that Royal Mail had missed its targets for 2022/23, which resulted in a £5.6m fine from Ofcom. Prior to that, the impact of the Covid-19 pandemic was taken into account so no fines were issued despite targets not being met. However, in the last full financial year uninterrupted by the pandemic, 2018/19, Royal Mail was fined £1.5m.
Furthermore, in January 2024 the regulator published a controversial document entitled “The future of the universal postal service”. This document set out options for redesigning the USO, including ‘reducing the number of delivery days offered from the existing six-day-a-week obligation down to five or three days’.
On 24 May 2024, Royal Mail published its full year financial results for the year ended 31 March 2024, in which it reported revenues of £12.68m and an operating profit of £26m.
Commenting on the acquisition, founder and chairman of EP Corporate Group Daniel Křetínský said: “IDS, and Royal Mail in particular, form part of the national infrastructure of the countries they operate in. More than that, Royal Mail is part of the fabric of UK society and has been for hundreds of years.
“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.”
On 15 April 2023, Royal Mail reached an agreement with the Communication Workers Union (CWU) after a lengthy dispute over pay and conditions for Royal Mail staff.
In a statement today, general secretary of the CWU Dave Ward shared his thoughts on the takeover developments, saying: “This situation is a direct result of a failed and ideological privatisation over a decade ago mixed with the blatant mismanagement of the company in recent years.
“These events have ripened one of the most iconic and important companies in the UK for a takeover by foreign investors. We do welcome some of the commitments that have been made but the reality is postal workers across the UK have lost all faith in the senior management of Royal Mail and the service has been deliberately run down.
“We will meet with EP Group next week and call for a complete re-set in employee and industrial relations, the restoration of postal services and further commitments on the future of the company.
“We will also be directly engaging with the Labour Party and other stakeholders to call for a new model of ownership for Royal Mail where our members and customers have a direct say in key decisions and the creation of a golden share which will protect a key part of the UK’s communications infrastructure.”
IDS shareholders will vote on the deal at the next annual general meeting, due to be held in September 2024. The takeover is also expected to be subject to heavy scrutiny from regulatory bodies.
