Rubbing his hands: Daniel Kretinsky
It’s great that Kemi Badenoch sat down with Martin Seidenberg, CEO of International Distributions Services (IDS), owner of Royal Mail.
The Business Secretary set out the Government’s demands if Czech billionaire Daniel Kretinsky’s £3.5bn offer is accepted.
The nation is supposed to be reassured by a commitment to keep Royal Mail headquartered in Britain and remain faithful to the universal service obligation.
Badenoch’s first mistake was not holding the meeting.
It might be acceptable for the Government to engage with Singapore-based Donald Tang, who proposes including fast fashion giant Shein in London. That would be a huge boost for the London Stock Exchange and the City, whatever qualms there may be about its Chinese supply chain. It is another thing to make the Czech billionaire and the IDS investors hopeful that a deal can be reached. The circumstances are very different.
But I can’t get out of my mind how the late cabinet secretary Jeremy Heywood (who also embraced failed financier Lex Greensill) brought Softbank boss Masayoshi Son into Downing Street. He convinced Theresa May and then Chancellor Philip Hammond that it was a brilliant idea to sell Arm Holdings to the Japanese tycoon for £22.5bn because it showed the UK was open to inward investment post-Covid.
Arm has since moved to New York’s Nasdaq and is valued at £95bn. And by the way, with its move into AI semiconductor design, it could potentially have become the trillion-dollar company that Chancellor Jeremy Hunt is targeting.
What does this have to do with IDS and Royal Mail? It shows that companies have a history of making politicians look stupid. The promise to keep the headquarters in London makes no sense, especially when you consider that the fastest growing part, parcel company GLS, is based on the continent. Whatever property emerges from Royal Mail, the universal service obligation (deliveries six days a week to the last mile) is sacrosanct.
Several factors have made the Royal Mail easy prey for Kretinsky. The car crash that is postal mail has been evident for decades, as email, messaging apps and other online facilities have caused the number of letters in the system to plummet from 20 billion a day to 7 billion , on the way to 4,000 million.
The administration has struggled to modernize the network. Along the way he has faced determined union obstruction. Simply visit a local sorting office to pick up an undelivered letter and recognize unreformed labor practices and a lack of understanding of customer service.
The government and regulators must also take some of the blame.
Ofcom is highly regarded for its oversight of telecommunications and its understanding of technical issues. But the time it takes to make regulatory changes is heartbreaking. There is absolutely no reason why the new two-tier system, with powers to increase prices for first-class mail, has not already been implemented, except for political expediency.
Fighting inflation is a government priority and Rishi Sunak doesn’t need a fight over the cost of first-class shipping.
Instead of trying to negotiate a way for the Czech buyer to get its way with IDS, the Government, regulators and Royal Mail chairman Keith Williams should not have compromised at all.
By the way, this is not an anti-Czech crusade. My late father was a Czech citizen, and of all the countries in the former Soviet bloc, the Czech Republic has adapted best to democracy and free-market capitalism.
The Royal Mail is a British public service and the taxpayer is on the hook for its crown-guaranteed pension fund.
Once the company is sold, command and control passes abroad. An entire ecostructure is altered. Tax domicile changes and HMRC pays a price.
It is naive to think that anything else is possible. IDS’s pusillanimous board and investors should tell Kretinsky to take a promotion and encourage Williams to resign and hire a new president with inner strength. Instead of hobnobbing with the invader, Badenoch should immediately invoke the National Security and Investment Law.