Royal Mail takeover gets thumbs up for national security

Daniel Kretinsky’s takeover of Royal Mail moves closer to completion after he was granted national security clearance by the British government on Friday.

Pat McFadden, the Chancellor of the Duchy of Lancaster, approved the takeover under the National Security and Investment Act.

Royal Mail’s parent company, International Distribution Services (IDS), agreed a £3.6 billion takeover by Kretinsky’s EP Group in May.

The proposed deal has sparked controversy, partly due to Royal Mail’s role in Britain’s communications infrastructure and Kretinsky’s commercial ties with Russia.

The Czech billionaire’s interests include a 49 percent stake in EUStream, which transports gas from Russia to Central and Eastern Europe via Slovakia.

Under a contract with Gazprom that runs until 2028, EP receives revenue from the state energy giant for the supply of Russian gas throughout Europe. The arrangement is legal under the laws of the European Union.

The Cabinet Office said EP Group’s acquisition of IDS was ‘subject to the parties ensuring that Royal Mail Group can and continues to provide services that support UK national security’.

IDS shareholders must now vote in favor of the deal before it can be completed.

In addition to security concerns, the transaction has also been heavily criticized because it is being financed with £3 billion of high-interest loans and IDS already has £2 billion in debt.

To secure approval, Kretinsky made numerous guarantees regarding the operation of the postal service.

These include commitments to maintain the universal service obligation (USO) to deliver letters to all UK addresses six days a week for the price of a postage stamp.

In addition, the UK government will hold a ‘golden stake’ in IDS, which will prevent Royal Mail’s brand name, headquarters and tax residence from changing without its consent.

And there will be no redundancies or plundering of the pension surplus until the end of 2025, while Royal Mail staff have been promised a 10 per cent share of the dividends paid to Kretinsky.

However, the Postal Service’s finances have come under significant pressure due to a decline in letter deliveries and the high costs of complying with the USO while maintaining a large workforce.

His record has also attracted attention; regulator Ofcom last week fined the company £10.5 million for failing to meet delivery targets for first and second class mail.

Many leading UK companies have fallen prey to foreign ownership in recent years, driven by cheap valuations relative to their international peers.

Cybersecurity specialist Darktrace, music rights investor Hipgnosis Songs Fund and energy investment group Smart Metering Systems were all bought by private equity firms earlier this year.

Investment platform Hargreaves Lansdown, soft drinks maker Britvic and packaging supplier DS Smith have also agreed to multi-billion pound takeover deals.