ALEX BRUMMER: Daniel Kretinsky faces a long and difficult road to taking control of Royal Mail
Under the microscope: Czech billionaire Daniel Kretinsky
Keir Starmer is not known for his loose language, so it was fascinating to hear him warn against ‘squandering’ vital assets as he unveiled plans to turn Britain into a green energy powerhouse.
The Prime Minister does not appear to belong to the camp that claims that selling the “crown jewels” to foreign buyers is a sign of confidence in Britain.
It will come as no surprise that the government has decided to investigate Czech billionaire Daniel Kretinsky’s £3.6bn bid for Royal Mail by invoking the National Security & Investment Act.
There was a vain belief within the board of International Distribution Services (IDS), the owner of Royal Mail, and among advisers and bankers (who would collect £146m in fees) that the deal could be completed quickly.
The hope was that this could happen unnoticed after the elections.
Confidence was bolstered by the 2022 investigation into Kretinsky, dubbed the “Czech Sphinx,” when he built up a 27.5 percent stake in IDS.
No security risks associated with Russia or any other state have been identified.
If you look at the way Whitehall has deployed the law so far, it has only used the powers to intervene in deals where there were fears about technology transfers to potentially hostile countries such as China.
It is often forgotten that the law has a much broader scope. It draws lessons from the powerful and uncompromising American Committee on Foreign Investment.
Japan’s Nippon Steel is currently being blocked by Joe Biden’s White House in its ambition to take over US Steel.
With determination, the sale of Royal Mail could face a public interest test in Britain. The Cabinet Office will seek to establish whether there is a link between Kretinsky, the Slovakian gas pipelines and Eustream and Russia.
Apparently, there is no such direct relationship. Kretinsky is not alone, however. His partner, J&T Capital, is a spin-off from a less-than-transparent Slovakian group that is much less known.
Understanding J&T should be a crucial part of the research.
A direct result of the deal’s “withdrawal” is that the city’s arbiter, the Takeover Panel, has suspended the August 4 schedule for completing a bid.
The panel’s rules are on hold until the legal hurdles are removed.
Meanwhile, the Kretinsky advisory train continues to roll. His team is reportedly in close contact with Economic Affairs Minister Jonathan Reynolds, who is keen to secure firm commitments between Kretinsky and the company.
Topics covered include the Universal Service Obligation (USO), jobs, headquarters and the future role of the main employee group, the Communications Workers Union.
There are concerns that the five-year shutdown is not long enough to act as a defence against the Royal Mail’s defenestration.
Moreover, now that Kretinsky has entered into dialogue with the union, he plans to continue the conversation.
All this is set against a fascinating backdrop. To restore profitability, Royal Mail needs regulator Ofcom to approve changes to the USO.
One major change would be to end the requirement that second-class mail be delivered six days a week.
A new approach could earn Royal Mail £300m to £350m in revenue, meaning Kretinsky would have to significantly increase his bid price.
Important lessons can be learned from the US. An American investor from Boston explains that there is a high risk of losing business unless Ofcom acts quickly.
The U.S. Postal Service, facing many of the same challenges, has become a problem for Washington. A private sector competitor, UPS, has stolen the mail service business by deploying better technology, logistics and tracking.
In the UK, Apollo company Evri (formerly Hermes) is trying to do the same with the Royal Mail.
If the government is serious about stopping the sale of important enterprises abroad, the best financial way to block an unwanted deal is to change the USO mandate.
Kretinsky, J&T and their advisors have a long and difficult road to victory.
The big question now is whether they can keep it up.
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