For the first time in five centuries, the Royal Mail is out of British hands after ministers approved its sale to Daniel Křetínský, known as the “Czech Sphinx”.
While the £5.3bn deal was struck in May, the final agreement only came on Monday after Křetínský’s EP Group gave fresh commitments to the government including a new “golden share” giving ministers a veto over attempts to move the group’s tax status or headquarters abroad.
In order to push through the purchase of the iconic brand, the Czech tycoon, who already has investments in UK supermarket chain J Sainsbury and football club West Ham United, also struck a separate deal with unions including the Communication Workers Union.
This includes promises to pay a 10 per cent share of dividends into an employee investment trust, to hold regular meetings with the union on the future of the business, and not to raid the pension surplus unless it is reinvesting in the business, according to people familiar with the matter.
The pledges could now make a tricky task ahead even more daunting: transforming a troubled legacy business into a profitable, modern postal service.
The concessions, which helped EP Group overcome initial union and government resistance to the deal, point to the difficult tightrope the billionaire must walk as owner of a historic brand that employs close to 140,000 workers and provides a vital public service.
If unions now have a “role in any changes to working practices, that would potentially make it a bit harder for” EP Group to carry out its plans, said Alexander Paterson, an analyst at Peel Hunt.
Royal Mail’s shifting ownership has been a long, twisting journey which began in 2003 when the market for postal deliveries was first opened to competition.
In 2013, the coalition government sold 60 per cent of the business for £2bn in a listing on the London Stock Exchange, before offloading the rest of its stake two years later.
At first the shares spiked, prompting accusations the business was sold on the cheap. Yet since then the share price of Royal Mail’s owner, now renamed International Distribution Services, has slumped as the company struggled to make money or offer punctual deliveries in an increasingly competitive market.
The leadership of Royal Mail, which has gone through four CEOs since privatisation, has been criticised for failing to adapt quickly to the rise of online shopping, or reassure workers as the business was threatened by the entrance of gig economy rivals.
The business hit a new low in 2022, when postal workers went on strike for 18 days in the lead up to the Christmas shopping period.
Management eventually reached a deal with the union to adapt working shifts, in return for higher pay, but not before retailers had rushed to send parcels through rivals.
Royal Mail, still the UK’s leading delivery group, saw its market share drop from 34 to 25 per cent in two years to 2022, according to analysis group Pitney Bowes.
During the most recent full year to March, IDS returned to profit following a £742mn operating loss the previous 12 months. But this was only thanks to the £280mn profit generated by its international parcel business GLS, which compensated for Royal Mail’s £254mn loss.
Křetínský warned that Royal Mail was facing a “deadly downward spiral” this year, as he set out his ambition to invest in the growing parcel market, including lockers for online deliveries.
But he will be taking over a business that has struggled to modernise while meeting costly legacy obligations as the country’s de facto postal service.
Under its “universal service obligation” (USO), Royal Mail is the only delivery group required to deliver letters anywhere in the country, from the Isle of Wight to the Shetland Isles, at the same cost every day besides Sunday.
But Royal Mail’s owner is seeking regulatory approval to end second-class letter deliveries on Saturdays.
In a concession to the government, Křetínský agreed to respect the USO for as long as his business owns Royal Mail, extending a previous commitment to only do so for five years.
But the deal only emphasised his commitment to six-day deliveries for first-class letters, as well as the “one-price-goes anywhere” service. Royal Mail’s call to cut second-class deliveries is under review by regulator Ofcom, which is set to make a decision next year.
In the original May offer, the Czech billionaire said he would keep Royal Mail’s headquarters and tax residency in the UK for five years.
That pledge has now been eclipsed by a stronger “golden share” of the sort that the British government has kept in other nationally significant privatised businesses such as BAE Systems and Rolls-Royce.
The golden share — which has no time limit — will still apply if the business is sold by EP Group. It is designed to ensure that without ministerial approval, the Royal Mail headquarters cannot be moved abroad and it will not be able to change where it pays its taxes.
The agreement says the golden share restrictions could be lifted only in “very limited exceptions”: where the government imposes taxes on Royal Mail which would be “unfair and inequitable.”
The deal now also says that if any part of the business is listed — before the end of 2029 — it would have to have its primary listing in London.
CWU general secretary Dave Ward said the union’s preferred option was renationalisation but added that for the first time since privatisation, the government was going to take a role in Royal Mail. “In the circumstances that Royal Mail is facing, this is the best option. It puts Křetínský in a place where he has got to work with us,” he said.
Nevertheless, during a House of Commons debate on Monday, some MPs expressed misgivings about whether the deal could eventually lead to the erosion of the USO.
Sir Edward Leigh, a Tory MP, said: “What we are all worried about is that, as this moves ever further away from public ownership, that the new private owner may try to chip away from the universal service obligation, particularly in rural areas.”
Křetínský has always maintained that he is not planning to break up the business. However, despite extending his commitments to the government and workers, as well as maintaining the principle of a USO, he has not given ground in a similar way on another closely watched pledge.
The tycoon has kept his undertaking to hold the profitable GLS business for only three years: a move that analysts have said could create a substantial windfall for the billionaire.
With GLS generating all the profits for owner IDS, union leaders have opposed a split of the business. CWU general secretary Dave Ward warned this year that the union was prepared to strike if the takeover led to a break-up.
Křetínský has made other concessions to his new workforce that Ward welcomed as part of a “groundbreaking agreement”- including the employee investment trust.
Around 20,000 recent employees recruited on inferior employment terms will see these brought in line with more experienced staff, while 11,000 temporary workers will also have the option to become full-time, Ward said.
The fresh commitment from Křetínský contains “significant financial safeguards”, including a five-year block on the new owners taking money out of the company if the business is not in a “robust, financially sustainable position”.
Paterson at Peel Hunt said the commitments suggest “the intention of the acquisition isn’t to asset strip [Royal Mail] but to invest in it and make it a more competitive group that can grow in what should be a growing parcels market.”