Royal Mail is on the verge of accepting a £3.5 billion takeover offer from Czech billionaire Daniel Kretinsky, setting the stage for the postal service to enter foreign ownership for the first time in its 500-year history.

The board of Royal Mail’s parent company, International Distributions Services (IDS), is anticipated to endorse a firm offer from Mr Kretinsky, who must finalise his proposal by the takeover deadline on Wednesday afternoon.

IDS has indicated its willingness to accept the bid, contingent on assurances regarding public interest matters. These include commitments to avoid forced job cuts, retain the Royal Mail brand, and maintain the company’s headquarters and tax base in the UK.

The proposed deal values IDS at over £5 billion, including debt, and is likely to face close scrutiny from regulators due to the sensitive nature of Royal Mail’s operations.

Known as the “Czech sphinx,” Mr Kretinsky is already IDS’s largest shareholder through his investment vehicle, EP Group. He also holds significant investments in Sainsbury’s and West Ham United Football Club.

Chancellor Jeremy Hunt has stated that any potential takeover will be reviewed under national security laws to ensure it does not threaten critical infrastructure. Mr Kretinsky previously underwent a national security investigation in 2022 when increasing his stake in IDS above 25%, which was ultimately approved.

Business Secretary Kemi Badenoch has requested a meeting with Mr Kretinsky in anticipation of the deal, while Shadow Business Secretary Jonathan Reynolds has also sought assurances.

Given the time required for a national security investigation, approval of any takeover is likely to fall to the next government.

EP Group has committed to maintaining Saturday deliveries for first-class letters and the universal service obligation of one-price-goes-anywhere. Other promises include preserving current employee rights and the company’s investment-grade credit rating.

Despite these assurances, the Communication Workers Union (CWU), representing Royal Mail workers, has criticised the takeover bid.

Dave Ward, CWU General Secretary, commented: “This situation is a direct result of a failed and ideological privatisation over a decade ago, combined with blatant mismanagement in recent years. These events have left one of the UK’s most iconic companies ripe for a takeover by foreign investors. While we welcome some of the commitments, postal workers across the UK have lost all faith in Royal Mail’s senior management.”

Mr Ward added that he plans to meet with EP Group next week to call for a “complete reset” in employee and industrial relations.

The takeover bid comes amid a significant decline in letter volumes, which has severely impacted Royal Mail’s finances, alongside recent strike actions. Shares in IDS have fallen nearly 30% since privatisation in 2013, making it vulnerable to a takeover.

Royal Mail has been advocating for changes to its universal service obligation (USO), arguing that current requirements are financially unsustainable as letter volumes decline. The company has proposed delivering second-class mail just three times a week, while maintaining six-day deliveries for first-class post.

Bosses have also attributed recent declines in service quality to the current USO rules. Ofcom recently launched an investigation into Royal Mail for failing to deliver more than a quarter of first-class post on time last year.

Royal Mail reported a £348 million loss in the 12 months to March, down from a £1 billion loss the previous year. However, IDS’s profitable parcels business, GLS, helped offset these losses, resulting in an overall pre-tax loss of £75 million for the group in the last financial year.

Mr Kretinsky’s approach has led to speculation that he might separate GLS from the struggling letters business and merge it with PostNL, the Dutch postal service in which he holds a significant stake. However, sources close to Mr Kretinsky insist he does not intend to break up the group.

Under City takeover rules, Mr Kretinsky has until 5pm on Wednesday to make a firm bid or withdraw.

Read more:
Royal Mail on Brink of £3.5bn Takeover by Czech Billionaire