Royal Mail owner ‘minded’ to accept raised £3.5bn takeover offer by Czech billionaire
Royal Mail owner International Distribution Services (IDS) announced on Wednesday that it is “minded” to accept a raised takeover offer worth around £3.5bn from Czech billionaire Daniel Kretinsky.
The FTSE 250 company’s shares soared as much as 20 per cent after the update, with IDS saying it was likely to agree on the terms and price of the proposal if Kretinsky makes a firm offer. They closed 17.8 per cent higher on Wednesday.
Kretinsky’s EP Group, which already holds a roughly 27.6 per cent stake in IDS through its affiliate group Vesa Equity, has raised its proposal to 370p per share, including a 10p dividend.
This figure marks a 72.7 per cent premium to the IDS’ stock price immediately before the billionaire’s first bid was confirmed in April.
His initial £3.1bn, 320p per share, takeover proposal was rejected by IDS’ board for being “opportunistic” and not reflecting “the growth potential and prospects of the company”.
“The sweetened deal from Daniel Kretinsky has been labelled ‘fair’ by IDS chairman Keith Williams and whilst it is substantially down on share price highs of yesteryear, this is a company that’s been running to stand still,” said AJ Bell head of financial analysis Danni Hewson.
“The 370p per share takeout price works out as 14.3 times expected earnings for the financial year to March 2025. Once you factor in all the baggage that comes with IDS, that feels like a fair price and it is hard to see anyone else rushing to trump that offer.
“The fact the shares are trading nowhere near the 370p offer price implies the market has little faith it will get over the line,” she added.
The potential takeover comes as Britain’s embattled postal service, which was privatised in 2013, calls for urgent action to modernise its operations as it faces rapidly declining letter volumes and increased competition from niftier couriers.
Earlier this year, communications watchdog Ofcom made proposals including a slower first-class service and reducing the number of delivery days from six to three.
IDS said on Wednesday that Kretinsky had agreed to offer a set of “contractual undertakings to protect key public interest factors and and recognise Royal Mail’s status as a key part of national infrastructure”.
Under the deal, Kretinsky would back Royal Mail’s plans to keep six-day-a-week deliveries for first class letters deliveries under the universal service, protect employees’ rights and retain Royal Mail’s brand and UK headquarters.
Keith Williams, IDS’ chair, commented: “The board is minded to recommend this offer price, which it considers to be fair and reflects the value of GLS’ current growth plans and the progress being made on change at Royal Mail to adapt the business to a significant fall in the demand for letters and growth in parcels.
“It is however regrettable that despite four years of asking, the government has not seen fit to engage in reform of the Universal Service and thus improve our financial position and ensure that Royal Mail could provide an economically sustainable service to the British public.”
Kretinsky, who is known as the “Czech Sphinx” and owns more than a quarter of West Ham United, now has until 5pm on 29 May to make a firm offer.
The deal is facing political scrutiny, with Chancellor Jeremy Hunt last month voicing concerns over Kretinsky’s proposal and saying there were “lessons” to be learned from the crisis Thames Water is currently dealing with.
Labour said shadow business secretary Jonathan Reynolds had written to Kretinsky calling for safeguards to be put in place to protect Royal Mail and ensure it is not operated overseas.
Dave Ward, general secretary of the Communication Workers Union, commented: “EP Group must immediately demonstrate an up-front and open commitment to working with the union to completely change the culture in workplaces across the UK, rule out any break-up of the company or raid of the pension surplus.”
“It cannot be right that a key part of national infrastructure is allowed to be owned by individuals or companies who have no vision for the future and no clear plan to put the workforce at the heart of turning Royal Mail around,” he continued.