IDS agrees to Kretinsky’s Royal Mail/GLS takeover offer

Czech billionaire Daniel Kretinsky will become the new owner of Royal Mail and GLS after their parent company International Distribution Services (IDS) today accepted his formal 100% takeover offer – unless British politicians move to block the deal.

Kretinsky, who is the group’s largest shareholder with a 27.6% stake through his investment company Vesa Equity, already raised his non-binding proposal by 15% to 370 pence per share earlier this month.

IDS announced today that the board had agreed the terms and conditions of a recommended 370 pence per share cash offer for all shares not already owned or controlled by Vesa Equity. The offer (through the entrepreneur’s EP Group and a specially formed ‘Bidco’ subsidiary) values IDS’ entire share capital at £3,568 million and implies an enterprise value of £5,284 million (including debt).

Potential and responsibility

Kretinsky, who also owns a 29.9% stake in PostNL among his many wide-ranging business activities, stressed the British group’s potential to become a leading European postal logistics group, the need for significant investments and the “enormous responsibility” of owning the UK’s national postal operator.

In particular, the prospective new owner has made a number of commitments, including to protecting Royal Mail’s USO obligations for a five-year period, its brand, union recognition and employee rights. In addition, he agreed to ensure there is “no change in control of GLS or Royal Mail” for the next three years.

“Comprehensive protections”

Commenting on these commitments, IDS stated: “The IDS Board believes that the undertakings to be offered to the UK Government and the other contractual commitments provided by EP and Bidco to IDS together constitute a comprehensive package of protections for IDS, Royal Mail and GLS, and provide the IDS Group's customers, employees, unions, regulators and broader stakeholders with safeguards for the provision of the Universal Service Obligation, the ongoing financial stability of Royal Mail, the maintenance of employee benefits for the IDS Group's employees, and Royal Mail's broader role in the United Kingdom.”

Negotiated undertakings

Keith Williams, the Chair of IDS, said: "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 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 (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.”

Looking ahead, Williams continued: “It is the IDS Board's belief that EP will continue to enhance IDS' investment in strategic areas such as network and out-of-home solutions.” He concluded: “The IDS Board believes that the offer from EP is fair and reasonable given that there are uncertainties ahead and allows investors to realise value at a significant premium."

“Enormous responsibility”

For his part, Kretinsky 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.”

Long-term investor

He stressed: “The EP group is a patient, supportive investor with a long-term view and decades of experience in owning critical national infrastructure. We are committed investors in the UK and first became a shareholder in IDS four years ago, as we saw the potential for the business to become one of the largest postal logistics groups in Europe.

“But IDS' market is evolving quickly, and it must accelerate its transformation and investments into modernisation to keep up with the competition. We will support the business in the next critical phase of its transformation and beyond, providing our experience and financial resilience to support the management team. We look forward to working closely with all of IDS' stakeholders to deliver against its full potential."

Stakeholder reactions

The initial reactions to the takeover agreement were mixed, according to UK media reports. The government, which could legally block the deal under the National Security and Investment Act, has not yet commented officially, although the BBC cited the chancellor (finance minister) Jeremy Hunt as saying that it was not opposed in principle.