Vithanage Madhushani Jadetimes Staff
V.E.K. Madhushani is a Jadetimes news reporter covering Business.
Czech Billionaire’s £3.6bn Takeover of Royal Mail
The UK government has approved the £3.6bn acquisition of International Distribution Services (IDS), Royal Mail's parent company, by Czech billionaire Daniel Kretinsky’s EP Group. This marks a significant shift for the future of the iconic postal service, with several legally binding commitments designed to protect Royal Mail’s operations and public services.
Commitments to Safeguard the Universal Service Obligation (USO)
As part of the deal, EP Group has pledged to uphold Royal Mail’s Universal Service Obligation (USO), which requires the delivery of letters six days a week and parcels five days a week across the UK. This commitment will remain in place as long as Kretinsky owns the company.
However, the USO is currently under review by the regulator Ofcom, which is considering changes like reducing second-class letter deliveries to every other weekday. This reform is seen as a cost-saving measure, with Royal Mail estimating it could save up to £300m annually. Ofcom’s Chief Executive, Dame Melanie Dawes, has acknowledged the need to reassess the USO in light of declining letter volumes, with a decision expected next year. Despite this review, Kretinsky has personally committed to maintaining the USO in its current form, stating he would honor it “for as long as I am alive.”
Worker and Union Agreements Secured
The acquisition comes with additional commitments to support Royal Mail’s workforce. EP Group has agreed to:
- Grant workers a 10% share of any dividends paid out to Kretinsky.
- Establish a workers’ group to provide employees with a direct channel to engage with the company’s directors on operational and strategic matters.
Dave Ward, General Secretary of the Communication Workers Union (CWU), praised the agreement, calling it the "best opportunity" to secure Royal Mail’s future. However, he emphasized that no agreement has yet been reached on USO reforms, and negotiations are ongoing.
Balancing Losses with a Profitable European Parcel Business
Royal Mail has faced significant challenges in recent years, including financial losses linked to declining letter volumes, which are now at half the level they were in 2011. Meanwhile, IDS’s European parcel delivery business, GLS, has been highly profitable, generating over £300m in revenue last year.
Kretinsky aims to leverage GLS’s success and expertise to revitalize Royal Mail’s position in the growing UK parcels market. Plans include investing in out-of-home delivery lockers and creating a pan-European logistics network.
Commitments to Protect Royal Mail’s UK Identity
To address national security concerns and preserve Royal Mail’s identity, the government negotiated several conditions for the takeover, including:
- Maintaining Royal Mail’s headquarters and tax residency in the UK for at least five years.
- Retaining the Royal Mail brand name.
These measures are designed to ensure continuity in operations and reassure the public that the company’s UK roots will remain intact.
Rising Challenges Amid Regulatory Oversight
Royal Mail continues to face significant challenges as it seeks to modernize its operations and improve performance. Last week, the company was fined £10.5m by Ofcom for failing to meet delivery targets for first- and second-class mail.
Jenny Hall, Royal Mail’s Director of Corporate Affairs, emphasized the importance of USO reform to adapt to shifting consumer habits, including the growing dominance of parcel deliveries over letters. She also pledged to keep postage costs as low as possible, although rising operational costs have already led to price hikes, such as the recent increase in first-class stamp prices to £1.65.
A Controversial Takeover Amid National Security Concerns
The sale was previously reviewed under national security laws due to Royal Mail’s role as critical national infrastructure. Although Kretinsky’s companies include a gas transmission service involved in the reduced transport of Russian gas to Europe, Business Secretary Jonathan Reynolds assured Parliament that Kretinsky is a “legitimate business figure,” and prior concerns about his alleged ties to Russia had been dismissed.
Looking Ahead: A New Era for Royal Mail
Kretinsky has outlined a vision to transform Royal Mail into a modern postal operator that delivers high-quality services. With the integration of GLS expertise, increased investment in technology, and a commitment to preserving the USO, the takeover presents both opportunities and challenges for one of the UK’s most iconic institutions.
The deal’s success will ultimately depend on EP Group’s ability to address Royal Mail’s financial struggles while maintaining public trust and delivering on its promises.
