Royal Mail takeover by Czech billionaire approved

London: The £3.6bn takeover by Daniel Kretinsky’s EP Group has been given the go-ahead after agreeing “legally binding” undertakings.

The government will retain a so-called “golden share” that will require it to approve any major changes to Royal Mail’s ownership, HQ location and tax residency.

EP Group will also have to maintain the one-price-goes-anywhere Universal Service Obligation (USO), which currently means it has to deliver letters six days per week, Monday to Saturday, and parcels Monday to Friday.

The company has committed to maintaining the USO for as long as it owns Royal Mail. Earlier this year, Mr Kretinsky told the BBC he would honour the service – in whatever form it takes – “for as long as I am alive”.

The USO is currently under review, with Royal Mail suggesting to regulator Ofcom that reducing second class deliveries to every other weekday would save up to £300m a year and give the business “a fighting chance”.

The regulator said in September that it was looking at these changes, with a decision due next year.

Ofcom chief executive Dame Melanie Dawes told the BBC there were “real questions about what the service needs to be going into the future”.

Given letter numbers are falling “we have to think about what is economical”, adding Ofcom would be publishing plans next year “to make sure it is sustainable”.

The takeover of Royal Mail’s parent company, International Distribution Services (IDS), is expected to be completed early next year. When debts are included, the deal values the company at £5.3bn.

Business Secretary Jonathan Reynolds said while it was up to shareholders to approve the deal, the agreement the government had reached meant the takeover “will be a good deal for the UK, be a good deal for the people who work for Royal Mail and a good deal for customers”.

Mr Kretinsky said the talks with the government had “resulted in unprecedented commitments and undertakings.

He added, that EP Group had a “mission to make Royal Mail a successful modern postal operator with high quality service and products for its customers”.

The conditions agreed by EP Group include keeping the brand name and Royal Mail’s headquarters and tax residency in the UK for the next five years.

It has also reached an agreement in principle with unions that include workers getting a 10% share of any dividends paid out to Mr Kretinsky, as well as the formation of a workers group that will meet monthly with the directors of Royal Mail to give employees a bigger voice on how it is run.

Dave Ward, the general secretary of the CWU union, told the BBC it was an “extensive agreement” and the deal was the “best opportunity” to save the future of Royal Mail.

However, he added that the union had “not agreed anything” on USO reform and there was “a long way to go” before that happened.

IDS also owns a highly profitable European parcels business called GLS which made over £300m last year. This offset losses at Royal Mail, allowing IDS to report a small profit.

By bringing GLS parcel know-how to the UK market, coupled with investment in out-of-home delivery lockers, Mr Kretinsky hopes to build a pan-European logistics business.

The hope is that this will enable Royal Mail to claw back market share it has lost in recent years in the profitable and growing parcels business.

Mr Kretinsky has a net worth of £6bn, according to the Sunday Times Rich List.

In addition to owning 27% of West Ham United football club and 10% of Sainsbury’s, Mr Kretinsky’s companies also own a gas transmission service which still pipes much reduced levels of Russian gas to Europe, paid for and with the consent of the EU.

Earlier this year the takeover was called in for review under national security laws as Royal Mail is considered vital national infrastructure.

But speaking in front of MPs in November, Reynolds had referred to Mr Kretinsky as a “legitimate business figure” whose alleged links to Russia had already been reviewed and dismissed when he became the biggest shareholder in the company nearly two years ago.

Royal Mail, which was split from the Post Office and privatised a decade ago, has seen its performance deteriorate in recent years, leading to heavy financial losses.

The volume of letters being posted in the UK has plummeted, with half the number being sent compared to 2011 levels.

Last week, Royal Mail was fined £10.5m by the regulator Ofcom for failing to meet delivery targets for first and second class mail.

Ofcom’s Dame Melanie Dawes told the BBC it was up to the new ownership to deliver on improvements and the regulator would “absolutely” hold Royal Mail to account.

Jenny Hall, director of corporate affairs at Royal Mail, told the BBC the company was investing to improve performance, but it was “really important” the USO was reformed to reflect consumer trends.

She added that Royal Mail would always try to keep postage costs as low as possible, but prices do “need to reflect the realities of delivering the service”.

The price of a second-class stamp, which is currently 85p, is regulated by Ofcom, with the amount Royal Mail can increase it by each year tied to inflation.

However, there are no such limits on first-class stamps, and in October Royal Mail pushed the price for first-class mail up by 30p to £1.65, citing “very real and urgent” financial challenges for the move.