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Royal Mail owner International Distributions Services has rejected a £4.5bn takeover approach by Czech billionaire Daniel Křetínský’s investment group, calling the timing of the bid “opportunistic”.
Shares in IDS rocketed nearly 29 per cent higher on Wednesday trading in London, after the FTSE 250-company said it had recently spurned a 320p per share offer from Křetínský’s EP Group. The shares closed at 276p.
Křetínský, a lawyer-turned-energy tycoon, is the largest shareholder in IDS with a 27.5 per cent stake and has been a prolific dealmaker in the UK, buying stakes in supermarket chain J Sainsbury and London football club West Ham United.
EP confirmed that it had “submitted a non-binding indicative proposal” to IDS on April 9, in response to an earlier report by the Financial Times that Křetínský was seeking to take the business private.
EP did not disclose the terms of its approach. The group said it had sought the IDS board’s backing for a possible cash offer. IDS is comprised of Netherlands-based parcels business GLS and the UK’s Royal Mail, the postal service and courier company.
IDS responded later on Wednesday, saying it rejected the 320p approach on April 11 because it “significantly undervalues IDS and its future prospects”.
It added that “the timing of the proposal is opportunistic. It does not reflect the growth potential and prospects of the company under a new management team” or a modernisation programme under way, among reasons for the rejection.
Royal Mail was privatised between 2013 and 2015 but has been grappling with the difficulties of maintaining its expensive delivery network in the face of a sharp decline in its traditional letter-delivery business. It delivered 20bn letters in the 2004-05 financial year, a total that is expected to drop to 7bn this year.
After the rally in its shares, IDS has a market capitalisation of £2.6bn. It has about £1.5bn of net debt.
EP now has until May 15 to table a firm offer under UK rules that govern takeover bids for public companies, though it said there was no guarantee it would do so. It is working on its approach with advisers from JPMorgan Chase, Citigroup and BNP Paribas, people close to the situation said. The banks declined to comment. IDS is working with Goldman Sachs, Bank of America and Barclays.
The postal business remains regulated. Royal Mail proposed last month that it should be allowed to deliver second-class letters only three times a week instead of six. The plans would reduce the burden of the universal service obligation, which forces the company to deliver items everywhere in the UK for the same price.
It has been trying to resolve the problems partly by capturing a larger part of the UK’s fast-growing parcels delivery business, in which it is the market leader. However, it faces fierce competition from rivals such as Amazon Logistics.
Alexander Paterson, an analyst at Peel Hunt, said he was “not surprised” by the bid from EP given “the recent stock performance”. A bid of 360p a share would be a “reasonable take-out price”, he added.
EP said Royal Mail was in a “challenging situation”. “Weak financial performance, poor service delivery and a slow transformation, in the face of a market going through structural change, have put the business under unsustainable pressure,” it said.
These factors, along with rising competition, meant private investment in the business was “crucial”, it added.
The possibility of a sale to Křetínský drew an angry response from the CWU, the main union for Royal Mail’s 130,000 staff.
“Handing over the ownership of one of the UK’s most prestigious institutions to a foreign equity investor cannot be right,” said David Ward, general secretary of the CWU. “But neither is the current model or direction of the company.”
The CWU engaged in a 10-month dispute with Royal Mail, settled in April last year, over pay and working practices. The dispute, which included 18 days of strikes, helped to erode the company’s share of the vital parcel delivery market.
In 2022, the UK government called off a probe under national security rules into Křetínský’s plans to increase his stake in Royal Mail to more than 25 per cent.
EP said on Wednesday that Royal Mail was “an important national asset” and that it would rebuild the business into a modern postal operator.
The Sunday Times reported in May 2023 that Křetínský had said in an interview that he had no intention of bidding for Royal Mail.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
