With the government finally approving his purchase of the Royal Mail, Daniel Kretínsky – the so-called “Czech Sphinx” – has landed his white whale.
The billionaire investor agreed a deal to buy International Distribution Services (IDS) – the name of the holding company – back in May.
However, the process was complicated by the government’s decision to call it in on national security grounds. Because, while letter deliveries are in long-term decline, the business is still seen as an important part of the nation’s communications infrastructure. Then there was the small matter of a general election being called while it was stuck in the weeds of Whitehall.
The concessions granted to get the controversial transaction back on track – controversial because this is a business that has been British-owned since its foundation back in the 17th Century – are considerable.
For a start, the British government will retain a golden share, meaning that any change in the group’s ownership, tax residency or HQ will require its agreement.
The European Union takes a dim view of these things – courts have argued that they impede the free movement of capital. But they’re back in fashion now, so that’s no longer an issue. It is fair to say that those seeking to use this as a justification for a Brexit that looks worse by the day are scraping the bottom of the barrel.
Kretínsky has also agreed a deal with unions over employee terms and conditions, which has secured their endorsement too. All this – and the fact that the universal service obligation, which IDS is constantly grousing about, not least because it’s costly and isn’t something competitors have to worry about – will remain in place. So will delivery targets, which the group has just been slapped with a £10.5m fine for missing.
Kretínsky, who got his nickname because of his inscrutability during his wildly successful travels in the financial world, has proved he was clearly willing to do what was necessary to get this over the line. Some might wonder why, but the billionaire, who made his fortune through the purchase of energy assets, is a noted contrarian. He is someone who believes that there are more drops of profit to be squeezed from declining industries than most others imagine.
His holdings are diverse. He owns 10 per cent of Sainsbury’s, a chunk of Footlocker and of Le Monde, the French newspaper. Having made his money in energy, he has invested in a diverse range of businesses, as well as a couple of football clubs – including West Ham; a traditional toy of billionaires.
It is nonetheless fair to say that IDS is not only one of his bigger purchases, at £3.6bn, it is also one of his bigger risks. Notwithstanding rumblings over the delivery of postal votes, the general election boosted Royal Mail revenues, which were also given a leg-up by a steep increase in the price of stamps (it’s now £1.65 for a small first-class letter). If you discount the election, volumes fell by another 5 per cent.
In its recent results announcement, the company once again moaned about the universal service obligation, as well as the cost pressures created by the “fiscal and regulatory backdrop” – among which is Rachel Reeves’s decision to increase employer national insurance contributions (NICs).
The group’s international logistics business, GLS, has been doing better – but even there the environment was said to be “challenging”, with the division in need of “continued investment” to make it sing. Net debt, meanwhile, increased to an ugly looking £1.9bn. Throw that in and the purchase price swells to well over £5bn.
There have been worse results announcements from this company. But this one still wasn’t pretty. This is what Kretínsky is about to take on.
That he is a controversial purchaser is obvious. His dealings with Russia gave the UK government something to think about, although it should be noted that he condemned the invasion of Ukraine.
That said, a private investor who can look beyond a grim set of results or two may be just what this organisation needs. The Royal Mail certainly wasn’t going to get fixed while listed on the stock market, where it is required to wash every set of dirty laundry in public for all to see.
The road Kretínsky must navigate to make a success of this deal is still going to be very bumpy – not to mention narrow. The agreements wrung out of him only made the dusty, single carriageway tighter.
Will the Sphinx be wearing an enigmatic smile a couple of years down the line? Hard to say. But it will rebound on the government that approved this if he is not. That is about the only thing we can say with certainty.