IDS: Royal Mail owner expected to accept improved Kretinsky bid

Royal Mail owner IDS’ board is expected to accept an improved offer from Czech billionaire Daniel Kretinsky as soon as Wednesday morning, it has been widely reported.

The new bid is said to be worth as much as £5bn, and will come with a degree of concessions related to staffing levels and UK tax residency.

The decision to recommend the offer to shareholders will push the takeover into the hands of regulators and politicians.

IDS shares rose over nearly two per cent today, following a rally of about 52 per cent since mid-April, when Křetínský, who is known as the ‘Czech Sphinx’, tabled a bid to buy the owner of the national postal service.

At market close the stock was up only 0.44 per cent. One year ago, the IDS share price dropped to as low as 199p, whereas today it sits around 326p, in part thanks to the potential takeover.

Although IDS rejected Kretinsky’s initial offer, it has said it is “minded” to accept a raised bid worth around £3.5bn from the Czech billionaire, whose EP Group already holds a roughly 27.6 per cent stake in IDS through its affiliate group Vesa Equity.

But the clock is ticking for the auction process, with the deadline for EP Group to make a firm offer tomorrow.

IDS has said the deal still depends on the final terms offered. In its most recent earnings report, the company said the potential change in control “may cast significant doubt over the Group’s viability”.

It has several financial obligations, including a large amount of debt and an undrawn bank loan facility of £925m. If EP Group takes control of IDS, the bank loan might need to be renegotiated and could be withdrawn.

Politicians have expressed concern about the foreign takeover of a critical British asset. Labour has promised to “safeguard” the Royal Mail as a British institution and has sought confirmation from Křetínský that the business would continue to be run from the UK.

Business and trade secretary Kemi Badenoch has reportedly told Royal Mail bosses that she would refuse it to be sold to a foreign buyer without certain guarantees over the protection of vital services, including maintaining the current six-days-a-week delivery schedule.

But the prospect of bailing out a struggling IDS may be far more concerning to the next government.

Amid the takeover frenzy, IDS released its full year results late on Friday afternoon, having delayed them from Thursday morning, which it blamed on the group’s auditor KPMG.

The trading update showed a mixed performance with better-than-expected operating figures for GLS but higher costs and significant regulatory challenges for Royal Mail.

Underlying operating loss for IDS was £28m, which was £1m better than anticipated due to GLS’s stronger operating profit of £320m, surpassing estimates by £2m.

However, Peel Hunt rated IDS a ‘hold’ after it reported net finance costs were £47m, £8m higher than expected. A £65m tax charge led to an adjusted net loss of £140m, significantly higher than the forecasted £50m loss.

Royal Mail also failed its delivery targets, with only 74.5 per cent of first-class mail and 92.4 per cent of second-class mail meeting the respective delivery standards.

Ofcom announced an investigation into Royal Mail’s failure to meet delivery targets, which “is likely” to result in a fine under £10m, according to Peel Hunt analyst Alexander Paterson said.

The embattled courier was fined £5.6m by Ofcom in November last year after it similarly failed to meet crucial delivery targets.

Royal Mail recently called for urgent action to modernise its operations as it faces rapidly declining letter volumes and increased competition from more agile rivals such as Amazon, DPD and Hermes.