Royal Mail takeover deal is a quagmire, says ALEX BRUMMER
Remember the Royal Mail? It was back on May 15, when the Tories were in Downing Street, that the flaccid board of International Distribution Services (IDS), owner of the Royal Mail, decided to hand the keys of Britain's 500-year-old postal service to a Czech billionaire Daniel Kretinsky and his shadowy Slovakian backers J&T.The Royal Mail is a company in difficulty, faced with a fast-shrinking market for the letter post, competition from ambitious rivals and a tortured relation with the Communication Workers Union.The great hope of Kretinsky, his backers and City advisers was a deal could be rapidly completed perhaps before a Labour government arrived in Downing Street.The election effectively killed that, with Labour's promise to 'robustly scrutinise' the transaction, putting the £146million of fees to City advisers in jeopardy. Troubles: The Royal Mail is a company in difficulty, faced with a fast-shrinking market for the letter post, competition from ambitious rivals and a tortured relation with the CWUIDS chairman Keith Williams and his team sought to clear the brush away by accepting undertakings from Kretinsky, including a promise to maintain the universal service obligation (USO) - the requirement for sixday deliveries to every corner of the land - for five years.In the context of the Royal Mail's Tudor history and its job as the delivery service used by HMRC, the NHS, election authorities and others, such a pledge, alongside a promise to preserve jobs, is barely credible.There has been a naive belief among the backers of Kretinsky's opportunistic 370p-a-share £3.57billion offer that the regulator Ofcom would come up with firm plans for the future of the USO by this summer.They know little of how Britain's sclerotic regulatory agencies work. Only now is there a proposal on the table.Ofcom has given its blessing to the Royal Mail suggestion of axing Saturday deliveries for second-class post, which would be delivered two or three days a week. A premium, higher-priced first-class service would be available for six days a week delivery.The proposal must go out to market testing. What do customers commercial, government and ordinary citizens think?Then there will be a consultation stretching through to next summer.Royal Mail competitors Evri (the former Hermes now owned by private equity), DHL, Federal Express et al must be licking their lips at the prospect of grabbing more letter and parcel deliveries.The USO is not the only sticking point. The deal has been called in under the National Security & Investment Act.This might seem like a formality, given that the Tories signed off to Kretinsky acquiring a 27 per cent stake.Full control is a very different matter.The Government has yet to show its hand on overseas takeovers. Keir Starmer hinted he doesn't think much of them when he recently launched Great British Energy.We also have learned that the Prime Minister's former role at the Crown Prosecution Service, as the director of public prosecutions, means he is pernickety about the law. We saw that over Rwanda, the riots and in the dreadful decision to impose a limited ban on export licences in Israel on the day that the bodies of six hostages, brutally murdered by Hamas, were returned.If the Department for Business and the Cabinet Office, together with the security services, decided there was a scintilla of concern about Kretinsky, J&T, Slovak connections to Moscow or other dodgy relationships, they could stop the deal.A leaf could be taken out of the Joe Biden and Kamala Harris playbook. Much to the consternation of Japanese prime ministerial candidate Taro Kono, the US is blocking a £13billion bid by Nippon Steel for US Steel after the committee on foreign investment in the US ruled it could harm steel production.Final regulatory obstacles to the Royal Mail could be the Competition & MarketsAuthority, which has a consumer obligation, and the EU.In the meantime, big battalion shareholders are sitting on their hands waiting to see how regulatory scrutiny works out.In their view, if the USO is changed sufficiently, Kretinsky's offer undervalues IDS.There is plenty of time and space for political manoeuvre, which could kill a deal that flies in the face of the national interest.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthSaxoSaxoGet £200 back in trading feesTrading 212Trading 212Free dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
