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Royal Mail could become Starmer’s first big headache

If a Czech billionaire’s purchase of the postal service goes through, Labour could face further union strife.

By Will Dunn

Election season can be a good time to do business. While the public is busy fulminating over the political embarrassments, such as the Prime Minister’s attempt to weasel out of commemorating the D-Day landings, deals that might otherwise be front-page news can be concluded at a safe distance from the limelight. If you’ve been thinking about floating a controversial fast-fashion company on the London Stock Exchange or buying a troubled national institution, this is an opportune moment.

On a related note, the Business Secretary Kemi Badenoch will meet next week with Daniel Kretinsky, the Czech billionaire currently bidding to buy Royal Mail. I imagine they’re both rather looking forward to it. For Badenoch, Kretinsky can perhaps be thought of as a pest control expert who is offering not only to remove a rotting fox from her garden, but to bury it under the lawn of a despised neighbour.

A week after the general election was called the board of Royal Mail’s owner, International Distributions Services, agreed a cash offer with Kretinsky’s investment company, EP. The offer values the company at £3.60 per share, plus 10p per share in dividends, making it worth around £3.6bn. This is almost half again the average price at which IDS shares had been trading in the year before the offer.

However, IDS is really two companies: GLS, a successful European parcel delivery company that made an adjusted operating profit of £320m last year, and Royal Mail, a public-service provider that is more than 500 years old, has a strongly unionised workforce that regularly goes on strike, and made an adjusted operating loss of £348m last year – not to mention its woeful recent attempt to deliver some camping equipment to my house.

The opportunity for Kretinsky is not just to invest in GLS’s growth but to stem Royal Mail’s losses. He has promised £400m of investment, much of which will likely go into new innovations such as parcel lockers, which are popular in other countries but not so widely established in the UK. However, the other way to reduce Royal Mail’s losses is for it to reduce its obligations to the public. Ofcom is currently considering plans including cutting deliveries to three days a week; the regulator has said that postal services are “unsustainable” in their current state.

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It would be a huge headache for an arriving Labour government if a new owner of the Royal Mail found the company to be even more in crisis than it already is, and took measures that led to even more union action, which might mean even less post actually arriving and a need for government intervention. It would be still worse if a future owner decided to split IDS into two companies and dispose of the loss-making one, because there would only be one buyer: UK plc, which isn’t exactly brimming with spare cash.

Kretinsky’s offer contains undertakings in the agreement to protect Royal Mail and ensure it upholds its responsibilities to provide a universal public service, and you’d expect government ministers to ensure these are taken very seriously. However, it’s also in Badenoch’s interest to waft the deal through, because – like prisons, water companies, council bankruptcies and many other brewing political problems – it will soon be someone else’s problem.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: The anti-Baillie Gifford mob wants to police art. Writers must not give in]

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