Royal Mail agrees to £3.57bn takeover by Czech billionaire Daniel Křetínský; Ofwat ‘to cut fines’ for stressed UK water companies – business live

The Labour Party has said it will make sure that Křetínský sticks to his promises regarding Royal Mail, should it win July’s general election.

In a statement, Labour welcomes Křetínský’s commitments (see earlier post), saying:

“These assurances are welcome that Royal Mail will retain its British identity and safeguard its workforce with no compulsory redundancies. Labour in government will ensure these are adhered to.”

The board of IDS agreed to Křetínský’s takeover offer after hammering out a package of legally binding undertakings and commitments.

They include a list of Undertakings to the UK Government, which include ensuring that Royal Mail remains the Universal Service Provider (USP) for postal services, for five years after the deal is completed.

That includes complying with the regulatory conditions imposed by Ofcom on Royal Mail for the next five years – including continuing to provide the “one-price-goes-anywhere” service in the United Kingdom and delivering first class letters six days a week.

[However, Ofcom is currently pondering reforms to the universal service obligation, which could include watering down second-class post, or reducing the service to as little as three days a week]

Křetínský also pledges that Royal Mail wouldn’t make any return of capital, asset transfers, loans or loan repayments that would raise its net leverage ratio above 2:1, or undermine its ability to operate as the USP – basically a pledge not to asset-strip the company.

As flagged earlier, both IDS and Royal Mail would maintain their headquarters in the UK for at least five years and remain tax resident in the UK.

The takeover agreement also touches on GLS – IDS’s rather profitable international parcels operation run out of Amsterdam. Křetínský pledges that there will be no change of control for either GLS or Royal Mail for three years.

He is also pledging not to dip into any surplus in the Royal Mail pension scheme, and to continue to recognise the CWU and CMA Unite unions.

Daniel Křetínský says he knows that owning Royal Mail comes with “enormous responsibility” – both to staff and customers.

In a statement released in today’s takeover announcement, Křetínský says:

“IDS, and Royal Mail in particular, form part of the national infrastructure of the countries they operate in. More than that, Royal Mail is part of the fabric of UK society and has been for hundreds of years. The EP group has the utmost respect for Royal Mail’s history and tradition, and I know that owning this business will come with enormous responsibility – not just to the employees but to the citizens who rely on its services every day. The scale of the commitments we are offering to the company and the UK Government reflect how seriously we take this responsibility, to the benefit of IDS’ employees, union representatives and all other stakeholders.

Křetínský – known as the ‘Czech Sphinx‘ due to his enigmatic approach to business – also promises to support International Distribution Services to transform its business:

The EP group is a patient, supportive investor with a long-term view and decades of experience in owning critical national infrastructure. We are committed investors in the UK and first became a shareholder in IDS four years ago, as we saw the potential for the business to become one of the largest postal logistics groups in Europe. But IDS’ market is evolving quickly, and it must accelerate its transformation and investments into modernisation to keep up with the competition. We will support the business in the next critical phase of its transformation and beyond, providing our experience and financial resilience to support the management team. We look forward to working closely with all of IDS’ stakeholders to deliver against its full potential.“

Britain’s struggling water companies are about to get a hand-up from regulators, according to reports this morning.

Water regulator Ofwat is drawing up plans for a special “recovery regime” for Thames Water and other financially stressed UK water companies, the Financial Times reports.

Under this regime, the water companies could receive fewer or no regulatory penalties to encourage them to invest in infrastructure improvements instead.

They would also be given more “realistic” targets for reducing sewage and water leaks and outages – despite some companies having spectacularly failed to hit targets in the past.

One person close to the plan has told the FT that while Ofwat recognises the “moral hazard involved in letting poor performers off the hook, it is also keen to put these companies on an upward trajectory”.

News of Ofwat’s planned leniancy comes a day after the Guardian reported that the regulator was poised to refuse most water companies’ requests to ratchet up consumer bills. Some are expected to get as little as half of what they have asked for, in the next review of bills and spending plans.

The new special “recovery regime” could be announced within weeks, to avoid Thames Water being taken into the government’s special administration regime, the FT adds.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s deadline day in the City today, with suitors for two UK-listed companies – mining giant BHP Billiton and Royal Mail – given until 5pm today to put up a formal bid, or walk away for six months.

And in the last few minutes, Czech billionaire Daniel Křetínský has announced a recommended cash offer for Royal Mail’s parent company International Distribution Services has been agreed.

IDS’s board has agreed to back a takeover worth £3.57bn, or 370p per share.

Earlier this month, IDS said it was minded to approve this improved offer from Křetínsy’s EP Group…

…and this morning Keith Williams, the chair of IDS, says the offer is”fair and reasonable” given the uncertainties ahead.

Williams says various guarantees have been reached with Křetínský, which will be presented to the government as soon as possible.

Those guarantees include ensuring that Royal Mail continues as the Universal Service Provider for five years after the deal is concluded, and maintaining a UK headquarters and tax residency for that period too (but what happens after that, you may wonder….).

Williams says:

The IDS Board has negotiated a far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards.

These cover the provision of the one-price-goes-anywhere Universal Service Obligation (including First Class letters still delivered six days a week), the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.

The deal could still face hurdles, though – chancellor Jeremy Hunt has indicted that the national security implications of such a bid would need to be scrutinised….

The agenda

• 7.45am BST: French consumer confidence for May

• Noon BST: US weekly mortgage applications

• 1pm BST: German inflation data for May