The £3.6 billion, 370p a share takeover of International Distribution Services (IDS), the owner of Royal Mail, by a company owned by Czech billionaire Daniel Kretinsky has passed a review prompted by concern over national security, says Jasper Jolly in The Guardian. This means that Royal Mail, which can be traced back to 1516, will be controlled by an overseas owner for the first time. In return, the state will retain a “golden share” in IDS, so any changes to Royal Mail’s ownership, tax residency or headquarters will need its assent. Royal Mail has also agreed to uphold the universal service obligation for first-class mail for at least the next six years.
In addition to securing the support of the government, Kretinsky also seems to have won over the unions, which are now praising the deal as a “fresh start”, says James Warrington in The Daily Telegraph. Staff have been promised 10% of any dividends paid out to Kretinsky, as well as a greater say in how the company is run through “a new workers’ group that will meet with bosses once a month”. He also says there will be no compulsory redundancies until any reforms to Royal Mail’s universal service obligation have been made.
Royal Mail takeover: reasons for scepticism?
Getting the green light from the government and an agreement in principle with unions “clears some of the biggest hurdles” for Kretinsky’s efforts to buy Royal Mail, says Russ Mould of AJ Bell. While technically shareholders “still need to vote on the takeover”, logic suggests that any opposing shareholders “would already have expressed their dissatisfaction by now”. After all, while some have suggested that IDS’s overseas parcels arm is worth at least 350p per share, there “are no alternative bids on the table”, which suggest shareholders “might be ready to take the money and move on”. But there are valid reasons to be sceptical, says Alex Brummer in the Daily Mail. Far from “strengthening a misfiring company”, the takeover “would weaken the group’s finances”. It is particularly hard to see how Kretinsky can honour promises to unions and the government on jobs and investment while taking on an additional £3 billion of extra leverage. What’s more, the record of foreign indebted takeovers has generally been “depressing”, with Thames Water “up to its neck in sewage and borrowings”, while the swift private-equity break-up of aerospace group Cobham “has been detrimental to Britain’s defences”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
No matter how good Kretinsky is at turning around the “underperforming” Royal Mail business, the underlying decline in the number of letters sent means that it will still be under pressure, says Hargreaves Lansdown’s Susannah Streeter. The success of the deal will therefore depend on long-term changes to the universal service obligation, especially concerning second-class mail, which would allow the firm to “right-size infrastructure to reflect the modern-day reality”. While the regulator is carrying out a review, any major reforms are “likely to be a long time coming”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
HMRC confirms crypto ETN ISA rulesWith crypto ETNs now technically available for UK retail investors, HMRC has confirmed they can be held in an ISA – but there’s a complication
-
Pensioners targeted in fine wine scams – the tactics to watch forWine has emerged as the latest lure in investment fraud, with pensioners being specifically targeted by scammers
-
Pierre-Édouard Stérin wants to make France great againConservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growthPinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with folliesThe best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuationAEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
