- Cash bid at 370p per share
- Stock trading at just 332p
- Questions over likely approval
The board of Royal Mail-owner International Distributions Services (IDS) said it had agreed to a raised £3.57 billion bid from Czech billionaire Daniel Kretinsky, already a major shareholder in the firm.
Despite the bid valuing IDS shares at 370p each, the stock traded just 11p, or 3.5% higher at 332p suggesting investors were reserving judgement on the deal getting government approval.
IMPROVED OFFER
The latest offer, which has been made through a SPAC, or special purpose acquisition company owned by J&T Capital Partners and EP Corporate Group, part of Daniel Kretinsky’s EP Investments, consists of an up-front cash payment of 360p per share, a final dividend of 2p per share and a special dividend of 8p per share contingent on the deal going ‘unconditional’, or in other words, signed, sealed and delivered.
As part of the offer the buyers have agreed to a ‘far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards’, in the words of IDS chairman Keith Williams.
Included in these commitments are a promise to maintain Royal Mail’s universal one-price-goes-anywhere service and the provision of first-class letter delivery six days a week for five years after the deal completes.
The buyers have also promised there would be no change of control at Royal Mail or General Logistics Systems, which handles international parcels, for three years after completion.
STAMP OF APPROVAL NEEDED
Billionaire businessman Kretinsky said EP Group had ‘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’.
Kretinsky added: ‘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.’
The deal is expected to close in the first quarter of 2025, but by then the current Chancellor is widely expected to be out of a job and it will down to his successor to decide whether or not to wave it through.
‘Now comes the hard part’, said AJ Bell investment analyst Dan Coatsworth. ‘Chancellor Jeremy Hunt has suggested the takeover would not be opposed in principle, but his view might soon be irrelevant.’
Shadow business secretary Jonathan Reynolds welcomed assurances the proposed new owner of Royal Mail will respect the company’s history and tradition and offered a series of undertakings so as not to rock the boat with the UK operations. Labour says it would take the necessary steps to ‘safeguard its undeniable identity and place in public life.’
The share price currently trades at 330p, much lower than the 370p per share being offered by Kretinsky. ‘That implies the market doesn’t believe this is a done deal despite the bidder’s promises to retain the brand, UK headquarters and UK tax residency – key things which should appease whichever government is in power’, said Coatsworth.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (Steven Frazer) own shares in AJ Bell.
