Rubbing his hands: Daniel Kretinsky
Very good that Kemi Badenoch spoke to Martin Seidenberg, CEO of Royal Mail owner International Distributions Services (IDS).
The economy secretary outlined the government’s demands if Czech billionaire Daniel Kretinsky’s £3.5 billion bid was accepted.
The aim is to reassure the nation with commitments to keep Royal Mail’s headquarters in Britain and stay true to its universal service commitment.
Badenoch’s first mistake was allowing the meeting to take place at all.
It could be acceptable for the government to engage with Singapore-based Donald Tang, who is proposing to list fast-fashion giant Shein in London. That would be a huge boost for the London Stock Exchange and the City, regardless of doubts about the Chinese supply chain. It is quite another to raise the hopes of the Czech billionaire and IDS investors that a deal should be made. The circumstances are very different.
But I can’t get out of my head how the late Cabinet Secretary Jeremy Heywood (who also embraced failed financier Lex Greensill) brought Softbank boss Masayoshi Son to Downing Street. He convinced Theresa May and then Chancellor Philip Hammond that selling Arm Holdings to the Japanese tycoon for £22.5 billion was a brilliant idea because it showed Britain was open to foreign investment post-Covid.
Arm has since switched to Nasdaq in New York and is valued at £95 billion. And besides, with the migration to AI semiconductor design, it could have potentially become the $1 trillion business that Chancellor Jeremy Hunt was targeting.
What does all this have to do with IDS and the Royal Mail? It shows that the business community has a reputation for making politicians look like fools. A promise to keep the headquarters in London is meaningless, especially when you consider that its fastest growing unit, parcel service GLS, is based on the Continent. Whatever ownership rights emerge for the Royal Mail, the commitment to universal service – deliveries six days a week, to the last mile – is sacrosanct.
Several factors have made the Royal Mail easy prey for Kretinsky. The car crash that is snail mail has been in plain sight for decades, as email, messaging apps and other online facilities have caused the number of letters in the system to drop from 20 billion per day to 7 billion, on the way to 4 billion .
Management has struggled to modernize the network. The country has faced determined trade unionism along the way. You only have to go to a local sorting office to pick up an undelivered letter to recognize unreformed labor practices and a lack of any understanding of customer service.
The government and regulators must also take some of the blame.
Ofcom is highly regarded for its oversight of the telecoms sector and its understanding of technical issues. But the time it takes to implement regulatory changes is soul-destroying. There is absolutely no reason that the new two-tier system, with the authority to raise prices for first-class mail, should not already have been implemented, except out of political opportunism.
Tackling inflation is a government priority and Rishi Sunak has no need to argue about the cost of first class deliveries.
Instead of trying to negotiate a way for the Czech buyer to get its way with IDS, the government, regulators and Royal Mail chairman Keith Williams should not have got involved at all.
By the way, this is not an anti-Czech crusade. My late father was a Czech citizen and of all the former Soviet bloc countries, the Czech Republic has adapted best to democracy and free-market capitalism.
The Royal Mail is a British public utility and the taxpayer is on the hook for its Crown-guaranteed pension fund.
Once the company is sold, command and control passes to a foreign country. An entire ecostructure is disrupted. The tax location shifts and HMRC pays a price.
It is naive to think that anything else is possible. IDS’ cowardly board and investors should tell Kretinsky to step up, and encourage Williams to resign and bring in a new chairman with inner strength. Instead of dealing with the intruder, Badenoch should invoke the National Security and Investment Act without delay.