Czech billionaire increases Royal Mail stake

Full takeover fears for British institution as shares sink further amid administration threat

 

Royal Mail’s biggest shareholder Daniel Křetínský has raised his stake in the delivery group despite mounting losses amid a bitter dispute with postal staff – and the company is reported to have threatened to put the business into administration if the dispute is not resolved.

According to The Daily Mail on Monday, 27 March, the Czech billionaire’s move will fuel speculation that the man who owns football club Sparta Prague and has a stake in West Ham United will launch a buyout of Royal Mail’s parent company International Distributions Services (IDS).

Above: Postal strikes caused havoc with Christmas card sending in 2022
Above: Postal strikes caused havoc with Christmas card sending in 2022

The same day The Guardian reported that the long-running talks between Royal Mail and the Communication Workers Union are on the brink of collapse with the company’s board thought to have threatened to put the loss-making postal service into a form of administration if a deal cannot be agreed.

This politically-explosive move to declare the regulated body that delivers mail to every address in the UK as insolvent is said to be regarded by bosses as a last resort but has apparently already been raised with the union following the resumption of talks after 18 strike days in 2022.

Approval for a special administration under the Postal Act would be needed from the government, and raises the possibility of more job losses among the 140,000 employees. It’s thought that only the parts of Royal Mail that operate under the universal service obligation – the requirement to deliver to every address six days a week at a uniform price – would be involved, while some parts of the parcels operation, including Parcelforce, would not be affected.

The Mail said the billionaire, nicknamed the Czech Sphinx due to his inscrutable demeanour, has increased his IDS holdings to 24% from 23%, as the group has floundered with the industrial action costing it £200million last year, down from the operating profits of £416m in the financial year to March 2022 with the help of the extra demand during the pandemic.

Some analysts predict this year’s losses could hit £224m, £100m more than previous forecasts, while IDS has previously claimed Royal Mail is on course to make operating losses of £350m-£400m this year.

Shares in IDS, owners of the 500-year-old British institution, have sunk by nearly 40% over the past year because of these issues, giving investors such as Mr Křetínský the chance to increase their stake cheaply – in the wake of his new investment IDS shares dropped 4.4%, or 10.2p, to 220.2p.

Under City rules, an investor must make a takeover offer for a company if their stake reaches or exceeds 30%, but The Mail said a swoop by Mr Křetínský is likely to trigger intense political backlash and spark opposition from trade unions amid fears over jobs and conditions because he is not interested in the letter delivery side of the business, only the more profitable and growing parcels arm.

The Royal Mail strikes leading up to Christmas caused havoc with the postal system and PG’s Independent Retailer Barometer saw 72% of respondents say they believe their customers sent fewer Christmas cards in 2022 compared to the year previous.

The CWU, which represents around 115,000 postal workers, had paused industrial action, saying the company had made “significant moves” towards a potential settlement. Brendan Barber, a former general secretary of the TUC, was brought in as a facilitator for the talks.

But the Guardian said hopes of a deal have faded over the past week. Sticking points include not only pay but also changes to working practices, with the company arguing the two are interdependent, and union bosses have announced they could call more strikes if an agreement is not reached this week.

Despite opposition from government and the whole greetings industry, with its view put forward by the GCA, Royal Mail appears to be angling to have its Universal Service letter-delivery obligation changed from six days a week to just Monday to Friday so no cards would arrive at the weekend for celebrations such as Mother’s Day and Father’s Day.

It has announced above-inflation price rises in the cost of both first and second-class stamps, increasing by 15p to £1.10 and 7p to 75p respectively from 3 April, and the House Of Commons Business, Energy and Industrial Strategy Committee has been forced to invoke an investigation by Ofcom establish if any decisions taken by Royal Mail meant it has breached its obligations to the British public following its report which concluded the company has deliberately prioritised parcels over letters, and “systemically failed to deliver against parts of its USO”.

The parent company also owns GLS, an Amsterdam-based international parcels business on course for adjusted operating profits of €370m to €410m this year, and IDS chairman Keith Williams raised the prospect of breaking up the group last year.

In November he said: “The board reiterates that in the event of the lack of significant operational change in Royal Mail, it will look at all options to preserve value for the group including the possibility of separation of the two businesses.”

Top: Daniel Křetínský is the biggest shareholder in Royal Mail

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