Royal Mail’s owner has warned that a potential £3.5bn bid by the Czech billionaire Daniel Křetínský could put the company’s financial future and operations at risk.
It came as the industry regulator Ofcom announced it had opened an investigation into the parent group, International Distributions Services (IDS), for failing to meet its annual delivery targets for the second year in a row. Last year, Ofcom fined the company £5.6m for failing to meet its first and second class delivery targets in 2022-23.
The warning over the revised offer by Křetínský’s EP Group, which IDS had backed just days ago, came in delayed annual results released on Friday afternoon. The previous day the company had apologised for failing to release its results at 7am as scheduled because of auditor delays.
The IDS board said that, while the London-listed firm had “adequate resources” to continue operating for at least 12 months, its long-term prospects hinged on whether the new owners would be able to maintain existing loans and secure fresh funding.
“The extent of the uncertainty related to whether existing finance will be recalled following a change in control, together with a lack of visibility or control over the availability of funding following a change in control,” IDS said.
The report said it created “material uncertainty” and “may cast significant doubt on the entity’s ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business”.
“Directors have concluded that the company and the group have adequate resources to continue in operational existence for at least 12 months,” they added.
It came as IDS reported it had swung to a £26m operating profit in the year to March, up from a £742m loss a year earlier. IDS benefited from better performance from its Royal Mail division, where price hikes and a jump in parcel deliveries helped narrow its losses to £254m, compared with a bumper £1bn loss in the previous 12 months.
EP Group has until 29 May to formally submit its £3.5bn bid, improved from an earlier £3.1bn offer which IDS had said “significantly undervalues” the company, or walk away from a takeover for six months.
Křetínský’s takeover interest comes against the backdrop of potential reform to the postal industry. Earlier this year, Ofcom laid out potential options for the future of the universal service obligation (USO), which mandates Royal Mail to deliver nationwide, six days a week, at a fixed price.
In response, Royal Mail has suggested it could pare back its second-class service to every other weekday to save money. However, it has committed delivering first-class letters six days a week – a promise that EP plans to honour, IDS has said.
EP is expected to present a series of undertakings to the government, including pledges not to make compulsory redundancies or split up the group, which also includes international parcels arm GLS. Last week, IDS bosses met with the business secretary, Kemi Badenoch, to discuss the bid and reforms to the USO.
The chancellor, Jeremy Hunt, has said any takeover bid for IDS would face a “normal” security review, but the government is not opposed to EP’s bid in principle.
Under the terms of the proposed Křetínský deal, the takeover will hand a windfall to the thousands of postal workers who have retained the shares they were given when Royal Mail was privatised in 2013. Shareholders will also be given a special dividend if the takeover is completed, worth £76m.
