The most dramatic aspect of International Distributions Services’ (IDS) Wednesday afternoon statement is that the company’s board indicated it intends to recommend Daniel Kretinsky’s offer to shareholders.
This demonstrates the depth of discussions that have evidently taken place between IDS and Mr Kretinsky’s PE Group since his original offer was rejected in April.
The 15.6% “bump” – in the jargon – in EP Group Offer is quite significant, bringing it to a level that is presumably satisfactory to IDS President Keith Williams and his colleagues.
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The issue of universal service
On this occasion, however, it is likely that the price was the least controversial part of the negotiations.
As the IDS statement makes clear, the PE Group agreed during negotiations to offer “contractual commitments to protect key drivers of the public interest and recognize Royal Mail’s status as a fundamental part of the national infrastructure”.
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This is likely to include a commitment to maintain “universal service” – a legal obligation on Royal Mail to deliver letters to every address in the UK, six days a week.
It’s something – as the IDS noted with frustration on Wednesday – that it has been trying to reach agreement on with the government for four years. The collapse in letter volumes means the UK-wide, one-price, go-anywhere service is proving increasingly expensive for Royal Mail to offer.
To this end, IDS has already done much of the heavy lifting for its potential buyer, as it has already done submit proposals towards a financially sustainable universal service in the future – something the PE Group has said it will maintain.
It also agreed to offer contractual commitments to protect workers’ current rights and continue to recognize existing unions of both Royal Mail and GLS, Global Logistical Services, the international parcel delivery business that is considered the hidden gem in IDS.
Issues to be resolved and questions to be answered
Kretinsky hopes these commitments will be enough to alleviate the concerns of Royal Mail customers and employees, should the acquisition go through.
There are other issues yet to be resolved.
The IDS board highlighted that it is still negotiating with the PE Group on how long the commitments and contractual commitments it is prepared to make with the government will last.
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It also wants assurances from EP Group to maintain an IDS investment grade rating profile.
This last issue is quite crucial: IDS’s BBB credit rating is under negative surveillance with the rating agencies. A downgrade would put IDS’s ability to raise money in the markets at risk and would put the stability of Royal Mail in particular at risk.
Therefore, there are still big questions that the PE Group has to answer.
But why?
What still confuses many in the city is what Kretinsky, who is also an investor in West Ham United FC and Sainsbury’s, among other assets, wants with the entire IDS.
GLS is certainly an attractive asset, but Royal Mail, with its traditionally militant unions and onerous regulatory obligations, is considered a much less attractive business.
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The bet has always been that at some point IDS would disintegrate – attracting numerous buyers to GLS and leaving Royal Mail, in the absence of a relaxation of its regulatory obligations, to languish.
Kretinsky is clearly betting that he can own both, while also fulfilling the obligations that Royal Mail has to its regulator.
Obstacles to be overcome
He should be able to avoid further scrutiny under the National Security and Investment Act, given that, as early as October 2022, it was accepted that it was OK for him to be a shareholder in IDS – and by extension Royal Mail – for reasons of national security.
But the commitments it has made to the IDS board will undoubtedly be something that Ofcom – and perhaps even the Competition and Markets Authority – will want to study carefully.
However, many long-suffering IDS investors will be delighted. IDS shares have traded at just 360p per share or above offered by Mr Kretinsky for 16 of the last 67 months and the last time they did so was in April 2022.
Many will undoubtedly jump at the opportunity to accept this offer.
This story originally appeared on News.sky.com read the full story
