Royal Mail agrees to £3.57bn takeover by Czech billionaire Daniel KÅetÃnský; Anglo rejects BHPâs call to extend bid talks â business live | Business
Introduction: Royal Mail agrees £3.5bn takeover
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Itâs deadline day in the City today, with suitors for two UK-listed companies â mining giant BHPBilliton and RoyalMail â given until 5pm today to put up a formal bid, or walk away for six months.
And in the last few minutes, Czech billionaire Daniel KÅetÃnský has announced a recommended cash offer for Royal Mailâs parent company International Distribution Services has been agreed.
IDSâs board has agreed to back a takeover worth £3.57bn, or 370p per share.
Earlier this month, IDS said it was minded to approve this improved offer from KÅetÃnsyâsEPGroupâ¦
â¦and this morning Keith Williams, the chair of IDS, says the offer isâfair and reasonableâ given the uncertainties ahead.
Williams says various guarantees have been reached with KÅetÃnský, which will be presented to the government as soon as possible.
Those guarantees include ensuring that Royal Mail continues as the Universal Service Provider for five years after the deal is concluded, and maintaining a UK headquarters and tax residency for that period too (but what happens after that, you may wonderâ¦.).
Williams says:
The IDS Board has negotiated a far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards.
These cover the provision of the one-price-goes-anywhere Universal Service Obligation (including First Class letters still delivered six days a week), the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.
The deal could still face hurdles, though â chancellor Jeremy Hunt has indicated that the national security implications of such a bid would need to be scrutinisedâ¦.
The agenda
7.45am BST: French consumer confidence for May
Noon BST: US weekly mortgage applications
1pm BST: German inflation data for May
Key events
This chart shows how Royal Mail/IDSâs share price has fluctuated since it was floated in 2013.
Photograph: LSEG
As we blogged at the time, Royal Mailâs shares surged 38% on the first dayâs trading, in October 2013, leading to claims the government had sold it too cheaply.
Members of the public who took part in the 2013 Royal Mail flotation will also make a profit.
There was a big rush to take part, meaning people were allocated 227 shares each, worth £749.
At KÅetÃnskýâs 370p offer, those shares (bought for 330p each) are worth £840, meaning those who held onto them will make a paper profit of about £90. Theyâll also have received dividends over the years.
However, theyâd have made a bigger killing if theyâd sold straight away, as Royal Mail shares soared to around £5.80 in the weeks after the float.
KÅetÃnskýâs takeover offer for Royal Mail should deliver a small windfall to postal staff who received shares though its flotation over a decade ago.
When the government floated Royal Mail on the stock market in 2013, it awarded 10% of its shares to its staff. That meant 150,000 employees shared 100m shares, meaning each received £2,200-worth each at the IPO price of 330p.
If KÅetÃnský offerâs goes through, post staff who have held onto their shares should receive around £2,500 each.
However, at Royal Mailâs alltime share price high above £6, those stakes were worth around £4,000.
Hereâs our news story on Ofwatâs plans:
Water company shares rally as Ofwat 'rewards failure'
Shares in UK water companies are rallying today, following reports that Ofwat is planning a more lenient regulatory regime for poorly performing firms.
UnitedUtilities, which operates in North West England (where it recently pumped raw sewage into Windermere for hours) are up 2.8%.
SevernTrent have gained 1.5%, while PennonGroup (owner of South West Water, hit by the waterborne disease outbreak in Devon) are up 2.1%.
Greenpeace fears Ofwat is rewarding failure.
Dr Doug Parr, policy director for Greenpeace UK, said:
âIf the story is correct the regulator has decided to reward failure, and punish the water companies for devaluing the UKâs water supply by giving them less stringent targets, a holiday on regulatory enforcement and more shareholder dividends.
Thames Water have got exactly what they were asking for - because it seems that in order to encourage other foreign investors to degrade UK infrastructure and turn our rivers into open sewers, they need to get a reasonable rate of return.â
Anglo American rejects BHP's bid to extend takeover deadline
Newsflash: Anglo American has rejected this morningâs request from rival miner BHP Billiton for an extension for the deadline to make a takeover offer.
Anglo tells the City that it has held âextensive engagement with BHP and its advisersâ, having rejected BHPâs three takeover proposals so far.
And it remains unimpressed by BHPâs proposal, saying:
The BHP Proposal includes the same highly complex and unattractive structure as the proposals previously rejected on 26 April 2024 and 13 May 2024.
Anglo cites BHPâs demand that it spins off its stakes in its South African platinum and iron ore units, before a deal is done, saying:
The requirement to pursue two contemporaneous demergers of publicly listed companies alongside a takeover and the inter-conditional nature of the three transactions is unprecedented. Undertaking a takeover in parallel with two demergers would result in additional material approvals.
Anglo is also unimpressed by the âsocioeconomic measuresâ proposed by BHP to smooth the deal, saying they would still leave its shareholders carrying most of the risk from the deal:
As Anglo puts it:
On 28 May 2024, BHP put forward a limited number of socioeconomic measures that were confined in scope, impact and duration and that BHP stated would support regulatory approvals.
This approach does not sufficiently address the fact that Anglo Americanâs shareholders would bear disproportionate execution and value risks and uncertainty over an extended period, nor does it consider that material conditions would likely be imposed in relation to both Anglo American Platinum and Kumba which would require the approvals of their respective boards.
This means BHP has until 5.00 pm today to either announce a firm intention to make an offer for Anglo American, or walk away for six monthsâ¦..
Postal unions are pushing for a new ownership model for Royal Mail, in which both staff and customers would have âa direct sayâ in how the company is run.
Dave Ward, general secretary of the CommunicationWorkersUnion, is also calling for a âgolden shareâ to be created (which would give special powers to block certain decisions).
Ward says:
âWe do welcome some of the commitments that have been made but the reality is postal workers across the UK have lost all faith in the senior management of Royal Mail and the service has been deliberately run down.
âWe will meet with EP Group next week and call for a complete reset in employee and industrial relations, the restoration of postal services and further commitments on the future of the company.
âWe will also be directly engaging with the Labour Party and other stakeholders to call for a new model of ownership for Royal Mail where our members and customers have a direct say in key decisions and the creation of a golden share which will protect a key part of the UKâs communications infrastructure.â
Ward also told Radio 4âs TodayProgramme that the CWU was seeking more extensive assurances about the future of postal services, and pension guarantees, as you can hear:
General Secretary Dave Ward on the today programme today calling our the gross mismanagement from the Royal Mail Board which has destroyed postal services in the UK.
Another takeover battle could be going into extra time.
BHP Group, the mining giant, has told the City it believes a further extension of the deadline for it to bid for rival AngloAmerican is needed, so there can be further engagement on its proposal.
BHP says it has proposed a number of âsocioeconomic measuresâ to address Anglo Americanâs concerns about its proposal, which has been consistently rejected by Anglo.
BHP, which has until 5pm to bid or walk away, says its proposed measures would provide greater economic benefits to South Africa than the break-up plan announced by Anglo American this month.
These measure include a series of steps aimed at addressing concerns over BHPâs condition that Anglo divest some South African assets â its shareholdings in Anglo Platinum and Kumba Iron Ore â before BHPâs proposal, currently valued at £34bn, can go ahead.
The company says:
BHP believes that its proposal will contribute to South Africa and allow the benefits of South African mining to be shared with more South African stakeholders.
There is still âsome cautionâ about whether this deal to acquire Royal Mailâs parent company will go through, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
Royal Mail owner IDS has rallied again after news broke that the board has agreed to a formal takeover offer from its major shareholder, EP Group, led by Czech billionaire Daniel Kretinsky.
Crucially, the offer is believed to deliver extra commitments to keep the name and the brand, rule out compulsory redundancies and keep the company headquartered in the UK. There is still some caution about whether the deal will go ahead, given that the government has the power under the National Security and investment act to potentially block the deal. IDS comes with a lot of Royal Mail baggage, particularly the obligation to deliver letters six days a week as the UKâs universal postal service, at a time when volumes are in sharp decline.
But the groupâs international arm GLS has long been considered the jewel in the companyâs crown, enjoying a level of success which Royal Mail has found elusive and EP Group will have been eyeing up the long-term opportunities here, particularly if inflation subsides further which should help margin growth.
IDS shares hit two-year high
Shares in International Distribution Services have jumped 3% at the start of trading, as traders react to the news that KÅetÃnskýâs recommended cash offer for International Distribution Services.
That have hit 335.2p, their highest level in over two years.
But, thatâs still shy of KÅetÃnskýâs offer (which is 360p per share in cash, plus a special dividend of 8p, plus a planned final dividend of 2p).
That suggests the City arenât 100% certain that the deal will go through. It requires IDS shareholders to vote for it, and will surely also have to clear a national security review.
KÅetÃnskýâsEP Group points out that the 370p offer is a 72.7% premium to IDSâs closing share price of 214p on 16 April, the day before his first offer (worth £3bn) was announced.
KÅetÃnský already owns 27.5% of IDS.
Labour: We'd hold KÅetÃnský to his assurances
The Labour Party has said it will make sure that KÅetÃnský sticks to his promises regarding Royal Mail, should it win Julyâs general election.
In a statement, Labour welcomes KÅetÃnskýâs commitments (see earlier post), saying:
âThese assurances are welcome that Royal Mail will retain its British identity and safeguard its workforce with no compulsory redundancies. Labour in government will ensure these are adhered to.â
What guarantees are there for Royal Mailâs staff?
Daniel KÅetÃnskýâs EP Group says it will abide by the deal reached between the postal operator and its unions, and will âenter into pay deal discussions with Royal Mailâs unions in good faith.â
It also pledges to maintain pay and benefits packages, saying that it has committed, for at least two years, that:
base salaries, wage rates and cash/equity incentive opportunities will, at a minimum, be maintained (save for any adjustments to cash/equity incentive opportunities to take into account the de-listing of IDS Shares); and
benefits and allowance packages (including pension benefits) will be no less favourable than those in place as at completion of the Acquisition.
KÅetÃnský's commitments to Royal Mail
The board of IDS agreed to KÅetÃnskýâs takeover offer after hammering out a package of legally binding undertakings and commitments.
They include a list of Undertakings to the UK Government, which include ensuring that Royal Mail remains the Universal Service Provider (USP) for postal services, for five years after the deal is completed.
That includes complying with the regulatory conditions imposed by Ofcom on Royal Mail for the next five years â including continuing to provide the âone-price-goes-anywhereâ service in the United Kingdom and delivering first class letters six days a week.
[However, Ofcom is currently pondering reforms to the universal service obligation, which could include watering down second-class post, or reducing the service to as little as three days a week]
KÅetÃnský also pledges that Royal Mail wouldnât make any return of capital, asset transfers, loans or loan repayments that would raise its net leverage ratio above 2:1, or undermine its ability to operate as the USP â basically a pledge not to asset-strip the company.
As flagged earlier, both IDS and RoyalMail would maintain their headquarters in the UK for at least five years and remain tax resident in the UK.
The takeover agreement also touches on GLS â IDSâs rather profitable international parcels operation run out of Amsterdam. KÅetÃnský pledges that there will be no change of control for either GLS or Royal Mail for three years.
He is also pledging not to dip into any surplus in the Royal Mail pension scheme, and to continue to recognise the CWU and CMA Unite unions.
KÅetÃnský: owning Royal Mail would come with enormous responsibility
Czech businessman Daniel Kretinsky, whose EP Group has agreed a takeover offer for Royal Mailâs parent company IDS Photograph: David W Äerný/Reuters
Daniel KÅetÃnský says he knows that owning Royal Mail comes with âenormous responsibilityâ â both to staff and customers.
In a statement released in todayâs takeover announcement, KÅetÃnský says:
âIDS, and Royal Mail in particular, form part of the national infrastructure of the countries they operate in. More than that, Royal Mail is part of the fabric of UK society and has been for hundreds of years. The EP group has the utmost respect for Royal Mailâs history and tradition, and I know that owning this business will come with enormous responsibility - not just to the employees but to the citizens who rely on its services every day. The scale of the commitments we are offering to the company and the UK Government reflect how seriously we take this responsibility, to the benefit of IDSâ employees, union representatives and all other stakeholders.
KÅetÃnský - known as the âCzech Sphinxâ due to his enigmatic approach to business â also promises to support International Distribution Services to transform its business:
The EP group is a patient, supportive investor with a long-term view and decades of experience in owning critical national infrastructure. We are committed investors in the UK and first became a shareholder in IDS four years ago, as we saw the potential for the business to become one of the largest postal logistics groups in Europe. But IDSâ market is evolving quickly, and it must accelerate its transformation and investments into modernisation to keep up with the competition. We will support the business in the next critical phase of its transformation and beyond, providing our experience and financial resilience to support the management team. We look forward to working closely with all of IDSâ stakeholders to deliver against its full potential.â
Ofwat 'to cut fines to help stressed UK water companies'
Britainâs struggling water companies are about to get a hand-up from regulators, according to reports this morning.
Water regulator Ofwat is drawing up plans for a special ârecovery regimeâ for Thames Water and other financially stressed UK water companies, the Financial Times reports.
Under this regime, the water companies could receive fewer or no regulatory penalties to encourage them to invest in infrastructure improvements instead.
They would also be given more ârealisticâ targets for reducing sewage and water leaks and outages â despite some companies having spectacularly failed to hit targets in the past.
One person close to the plan has told the FT that while Ofwat recognises the âmoral hazard involved in letting poor performers off the hook, it is also keen to put these companies on an upward trajectoryâ.
News of Ofwatâs planned leniancy comes a day after the Guardian reported that the regulator was poised to refuse most water companiesâ requests to ratchet up consumer bills. Some are expected to get as little as half of what they have asked for, in the next review of bills and spending plans.
The new special ârecovery regimeâ could be announced within weeks, to avoid Thames Water being taken into the governmentâs special administration regime, the FT adds.
Introduction: Royal Mail agrees £3.5bn takeover
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Itâs deadline day in the City today, with suitors for two UK-listed companies â mining giant BHPBilliton and RoyalMail â given until 5pm today to put up a formal bid, or walk away for six months.
And in the last few minutes, Czech billionaire Daniel KÅetÃnský has announced a recommended cash offer for Royal Mailâs parent company International Distribution Services has been agreed.
IDSâs board has agreed to back a takeover worth £3.57bn, or 370p per share.
Earlier this month, IDS said it was minded to approve this improved offer from KÅetÃnsyâsEPGroupâ¦
â¦and this morning Keith Williams, the chair of IDS, says the offer isâfair and reasonableâ given the uncertainties ahead.
Williams says various guarantees have been reached with KÅetÃnský, which will be presented to the government as soon as possible.
Those guarantees include ensuring that Royal Mail continues as the Universal Service Provider for five years after the deal is concluded, and maintaining a UK headquarters and tax residency for that period too (but what happens after that, you may wonderâ¦.).
Williams says:
The IDS Board has negotiated a far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards.
These cover the provision of the one-price-goes-anywhere Universal Service Obligation (including First Class letters still delivered six days a week), the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.
The deal could still face hurdles, though â chancellor Jeremy Hunt has indicated that the national security implications of such a bid would need to be scrutinisedâ¦.