U.K.’s Royal Mail Available ‘On The Cheap’ As Czech Billionaire Takes A Chunk Of 500-Year-Old Company

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David Dawkins   Forbes U.S. Staff

Royal Mail UK

Photo: Matt Seymour on Unsplash

Billionaire Daniel Křetínský of the Czech Republic has purchased a 5.3% stake in the U.K.’s national postal service and courier company Royal Mail. Regulatory filings on Monday confirm that Křetínský’s Vesa Equity Investment, an investing entity, has taken a $105 million (£85 million) position in the Royal Mail, which went public in October 2013, to much public anger.

Křetínský’s move inches open the door for a takeover attempt with, according to one FTSE commentator, Royal Mail’s “worsening financial performance” making it more vulnerable to buyout since the onset of the pandemic in March.

Křetínský has an estimated net worth of $3.4 billion, according to Forbes. His principal asset is Energeticky A Prumyslovy Holding (EPH), the biggest energy group in Central Europe. He also owns Sparta Prague football club alongside stakes in French newspaper Le Monde and German retail giant Metro AG.

Royal Fail?

The business behind Britain’s postman and famous red pillar boxes has struggled since going public under the coalition government led by former Prime Minister David Cameron.

After floatation, its price rose in the FTSE100 share index of the London Stock Exchange’s top 100 companies by market capitalization, to peak at $10.7 billion (£8.6 billion) in May 2018. Today it sits in the FTSE250, having seen its market cap sink to $2.12 billion (£1.7 billion).

Dr Paul Simmonds, a FTSE watcher and academic from Warwick Business School, tells Forbes that for the right buyer, the current share price puts it “in reach” of those who see an opportunity to snap up a prestigious asset “on the cheap.”

Simmonds tells Forbes that billionaire Křetínský “will have to be confident of being able to solve Royal Mail’s problems,” especially that of its Universal Service Obligation–requiring Royal Mail to deliver to every address in the U.K., six days a week, at a standard price (one that does not account for distance).

Postal regulator Ofcom reported in 2017, the most recent data available, that the cost of this obligation had hit over £100 million in 2011, “as people continued to send fewer letters.” Royal Mail is in the midst of a transformation to focus on parcels over letters as part of a $2.2 billion investment plan. And although operating profits are expected to rise to $373-$422 million for the current financial year, deep losses are expected in the years to come according to chief executive Rico Back during the half year results announcement in September 2019.

Simmonds describes the Royal Mail’s Universal Service Obligation as the “albatross around Royal Mail’s neck” as a problem that is “unique ... putting it at a disadvantage to its competitors who focus on the profitable parcels operations.” However he adds that Royal Mail is capable of innovation, and its move towards greater automation points the way to which its infrastructure can be further developed. “Daniel Křetínský would probably look [to] leverage Royal Mail’s extensive U.K. infrastructure ... in the fast-growing markets of the Asia-Pacific region,” Simmons said.

Foreign Ownership

A billionaire Czech owner of a prestigious U.K. national asset is unlikely to change the mind of a public fiercely opposed to the 2013 IPO.

In July 2013, after business secretary Vince Cable made public the details of the Royal Mail flotation on the London Stock Exchange, research from global public opinion and data researcher YouGov showed that privatization of the Royal Mail was opposed by 67% of British adults, and supported by just 20%.

YouGov found that the most “passion” about the plans came from 36% of Britons who claimed to "strongly oppose" privatization, compared to only 4% who claimed to “strongly support” it.

However, Simmonds says that although Royal Mail is still “held in high regard by the British public” the “outpouring of anguish when the 500-year-old company was privatized in 2013 has largely dissipated over the years.”

History, In short

A Czech billionaire owner would certainly represent a new–and rather modern–chapter in the Royal Mail’s story so far.

Back in 1516, King Henry VIII established what would become Britain’s national postal service with the creation of the Master of the Posts role, which would evolve into Postmaster General–a Cabinet-level ministerial post in the government.

At first a distribution system for royal and government documents reserved for important and noble folk, the sending of letters was made available to the public by Charles I in 1635 with postage paid by the recipient.

Stamps arrived in 1839, while postboxes, olive green and not red, followed in 1852 and became a vital part of the U.K.’s infrastructure throughout the industrial revolution.

However, never far from controversy, in 2014 David Cameron was slammed during a clash in parliament with opposition leader Ed Miliband over the controversial Royal Mail IPO that many felt should never have happened.

Miliband described the Prime Minister as “not so much the Wolf of Wall Street, more the dunce of Downing Street” over claims taxpayers had lost $1.7 billion (£1.4 billion) after Royal Mail shares had been undervalued by Cameron’s coalition government.

 

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David Dawkins   Forbes U.S. Staff

I am a wealth reporter at Forbes, based in London covering the business of billionaires, philanthropy, investing, tax, technology and lifestyle. I studied at Goldsmiths, University of London and joined from Spear's Magazine, where I covered everything from the Westminster bubble to world of wealth management, private banking, divorce law, alternative assets, tax, tech and succession. Notable bylines include an investigation into Switzerland's bi-lateral bonds to the European Union, and a journey through Bhutan - testing the hunger for democracy, and the love for their King. I joined Forbes in May 2019.