As the Times pithily puts in “this time the Czech really is in the post”.
At a recent CDC event , DWP told us we could expect to see Royal Mail’s CDC scheme in operation this year. After 6 years of waiting this sounded “better late than never”, even though sources “close” to Royal Mail had expected the scheme to go live at the end of July.
Royal Mail has bigger things to worry about than its now complete CDC scheme. On April 15th, Daniel Křetínský, the Czech Sphinx , tabled a £4.5 bn (320p a share) offer for Royal Mail’s parent IDS. Of this Royal Mail is expected to have been valued at £0 (JP Morgan briefing note) or £250m (FT estimate) while Dutch sister company GPL is worth the rest.
A month later and that offer has increased to 370p a share with a commensurate increase in the valuation of the business. The City doesn’t share that view of Royal Mail’s value, the shares, up 16 per cent to 314¾p, are well adrift of his putative offer. Here is a bid likely to become embroiled in a political ruck, with the Daily Mail already running “Hands off the King’s head” headlines. Analysts only see only political downside in clearing a takeover, especially in an election year with “no votes in supporting this”.
Křetínský’s corporate vehicle, the EP Group , already owns nearly 28% of International Delivery Services – Royal Mail’s holding company.
There’s always a pension angle – at Royal Mail its an acute one.
The problem with Royal Mail? An unprofitable public service obligation to deliver the mail and high labour costs – including an ongoing c £124m pa pension cost (DC and soon to be CDC).
Royal Mail has built up a healthy surplus in its DB scheme (£3bn). The Times tells us Křetínský’s company (EPS) claims Křetínský has no eye for this surplus.
This will keep the Unions happy but they need to keep a careful eye out. Less than a year ago, he spoke with the Times
Kretinsky makes clear he has no intention of bidding for Royal Mail, where his Vesa Equity vehicle owns more than 25 per cent
….. “We are interested to see whether a company has the capability to generate sufficient free cashflows, which means you create economic value,” he says. “There may be companies where you can be a happy 10 per cent shareholder for 20 years.”
Such are promises in the world of corporate finance .
A source close to Křetínský, told FT’s Lex column that it intended to knock £150m a year off the “service bill” which sounds ominous for the CDC pension scheme.
This is a pension blog and I will focus on the pension issue.
The CWU and Royal mail should be preciously guarding the “pension pots” that form the basis of the long term security of the 100,000 + Royal Mail workforce.
Royal Mail is a massive employer with huge plans to pay pensions to all its staff. Its relationship with its principal union, the CWU were restored in 2018 by the deal struck by Royal Mail’s Jon Millidge and CWU’s Terry Pullinger. That deal has yet to be implemented and is vulnerable.
A company valued at between £0 and £250m which owns a trust with a up to £3bn of surplus assets is ripe for pension surplus stripping,
The £124m paid by RM into staff pension schemes is an easy target for EP as it looks to shave £150m off the “service cost” of delivery.
Royal Mail and its unions will do well to protect itself and its pensions. The struggle for control of Royal Mail is not just about parcels and post.