Royal Mail, the iconic British postal service, finds itself at a crossroads. A recent takeover bid by Czech billionaire Daniel Kretinsky, through his investment vehicle EP Group, has thrown the company’s future into question, reports Reuters.
IDS, the parent company of Royal Mail, rejected Kretinsky’s initial £3.1 billion offer, deeming it undervalued, however, Kretinsky is reportedly working on a revised offer, with a deadline of May 15th under UK takeover rules.
This potential acquisition comes amidst financial strain for Royal Mail. Declining letter volumes, a core revenue stream, have placed significant pressure on the company.
As The Guardian explains, the volume of letters has fallen from a peak of 20 billion in 2004-5 to just 7 billion in the last financial year, and the trend is expected to continue. This decline, coupled with recent hurdles such as cyber security incidents, labour disputes, and regulatory fines, has created a challenging financial environment.
Adding to the complexity is the ongoing review of Royal Mail’s regulatory obligations. The Universal Service Obligation (USO) mandates daily deliveries at a fixed price, a requirement considered unsustainable by some stakeholders in light of declining letter volumes.
Redwheel, a major shareholder in IDS, has reportedly called for regulators to relax these obligations, arguing that they create an “unreasonable cost burden”.
Royal Mail itself has requested permission to reduce deliveries to two or three days a week in a bid to cut costs, a proposal opposed by Prime Minister Rishi Sunak who favours maintaining the six-day service.
The next few weeks will be crucial for Royal Mail. Kretinsky’s revised offer and Ofcom’s decision regarding the USO will determine the company’s future direction.