International Distribution Services (IDS) has announced on Wednesday that its board is inclined to recommend Daniel Kretinsky’s offer to its shareholders. This indicates the depth of discussions that have taken place between IDS and Mr Kretinsky’s EP Group since the initial offer was rejected in April.
The offer from EP Group has been increased by 15.6%, which is considered significant in the business world. This increase is presumably acceptable to IDS chairman Keith Williams and the rest of the board. Money latest: UK economy in safe hands ‘whoever wins’ election, top bank chief says
Although the price may have been the least contentious part of the negotiations, the statement from IDS clarifies that EP Group has agreed to offer “contractual undertakings to protect key public interest factors and recognize Royal Mail’s status as a key part of national infrastructure”. This includes a commitment to maintain the “universal service” which requires Royal Mail to deliver letters to all addresses in the UK six days a week. However, as noted by IDS, this has been a point of frustration for the company as it has been in negotiations with the government for four years.
The declining volume of letters has made it increasingly expensive for Royal Mail to provide the one-price-goes-anywhere service for the entire UK. In anticipation of a potential buyer, IDS has already proposed solutions for a financially sustainable universal service, which EP Group has agreed to maintain. It has also committed to protecting employees’ current rights and recognizing the existing unions of both Royal Mail and GLS, Global Logistical Services, the international parcel delivery business owned by IDS.
While these commitments may be enough to appease concerns from customers and employees, there are still unresolved matters and questions that need to be addressed. The IDS board is still negotiating with EP Group over the duration of the undertakings and contractual commitments they are willing to make to the government. Additionally, IDS is seeking assurances from EP Group to maintain an investment grade rating profile, as their current BBB rating is on negative watch.
It is still unclear why Mr Kretinsky, who is also an investor in West Ham United FC and Sainsbury’s, among other assets, is interested in acquiring the entirety of IDS. While GLS is seen as a desirable asset, Royal Mail’s traditionally militant unions and regulatory obligations make it a less attractive business. Some speculate that IDS may eventually break up, with GLS attracting multiple buyers while leaving Royal Mail to struggle under its regulatory obligations.
Mr Kretinsky’s acquisition may not face any issues under the National Security and Investment Act, as it was previously determined in October 2022 that his ownership of IDS does not pose any national security concerns. However, the commitments made to the IDS board will likely be closely scrutinized by Ofcom and potentially the Competition & Markets Authority.
Despite any potential hurdles, many investors of IDS will likely be pleased with this offer. The company’s shares have only traded at or above the 360p-a-share offered by Mr Kretinsky for 16 of the last 67 months, with the last time being in April 2022. It is expected that many investors will accept this offer.
