The owners of Royal Mail have warned that a £3.5bn takeover bid by Czech billionaire Daniel Kretinsky could pose risks to the company’s finances.
The warning came as industry regulator Ofcom said it had launched an investigation into parent company International Distribution Services (IDS) after it failed to meet its annual distribution targets for the second year in a row. Ofcom fined the company £5.6 million. Due to failure to meet first and second tier delivery targets for 2022-23.
Kretinsky’s warning against proposed revisions by EP Group, which IDS has said it is “intended to accept”, came in its annual results, which were published late on Friday afternoon. The company had apologised on Thursday for failing to release its results at 7am as planned due to auditor delays.
IDS’s board said Royal Mail had sufficient resources to continue trading for at least 12 months, but its longer-term prospects depended on the new owners being able to maintain existing loans and secure new funding.
“The degree of uncertainty as to whether existing funds will be collected following a change in control and the lack of visibility or control over the availability of funds following a change in control,” IDS said.
The report said this creates “significant uncertainty” and “may cast significant doubt on the company’s ability to continue as a going concern, which may result in it being unable to liquidate its assets and repay its liabilities in the ordinary course of business.”
IDS reported that operating profits rolled into £26 million in the year to March, up from a loss of £742 million a year earlier. IDS benefited from improved performance at its Royal Mail division, where higher prices and increased parcel deliveries helped losses narrow to £254 million, compared with a huge loss of £1 billion in the previous 12 months.
EP Group has until May 29 to formally submit a takeover bid of £3.5 billion – up from a previous £3.1 billion offer which IDS said “significantly undervalued the company” – or walk away from the deal for six months.
Kretinsky’s interest in a takeover comes against the backdrop of possible changes to the postal industry. Earlier this year Ofcom set out possible options for the future of the Universal Service Obligation (USO), which requires Royal Mail to deliver nationwide six days a week for a fixed price.
Royal Mail has responded by suggesting it may reduce its second-class service to every other weekday to save costs, but it has committed to delivering first-class mail six days a week and EP intends to honour this commitment, IDS said.
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The EP is expected to submit a series of undertakings to the government, including no compulsory redundancies and no break-up of the group, which also includes its international parcels division GLS. Last week, IDS bosses met with Business Secretary Kemi Badenoch to discuss the takeover bid and the changes to USO.
Chancellor of the Exchequer Jeremy Hunt said any bid for IDS would be subject to the “normal” security checks, but the Government was not opposed to EP’s bid in principle.
Under the terms of Mr Kretinsky’s proposed takeover, the deal would provide a windfall for thousands of postal workers who held shares in Royal Mail when it was privatised in 2013. Shareholders would also be paid a special dividend worth £76 million if the takeover goes through.
