Royal Mail acquisition receives national security approval

Daniel Kretinsky’s takeover of Royal Mail is inching closer to completion after securing national security clearance from the UK government on Friday.

Pat McFadden, Chancellor of the Duchy of Lancaster, approved the acquisition under the National Security and Investment Act.

Royal Mail’s parent company International Distribution Services (IDS) agreed a £3.6bn takeover by Kretinsky’s EP group in May.

The proposed deal has generated considerable controversy, partly due to Royal Mail’s role in the UK’s communications infrastructure and Kretinsky’s business links in Russia.

The Czech billionaire’s interests include a 49 percent stake in EUStream, which transports gas from Russia to Central and Eastern Europe via Slovakia.

Under a contract with Gazprom that will last until 2028, EP receives revenue from the state energy giant for the supply of Russian gas across Europe. The agreement is legal under the laws of the European Union.

The Cabinet Office said EP Group’s acquisition of IDS is “subject to the parties ensuring that Royal Mail Group remains capable and continues to provide services that support UK national security”.

IDS shareholders will now have to vote in favor of the deal before it can close.

As well as security concerns, the transaction has come under heavy criticism as it is financed with £3bn in high-interest loans and IDS is already £2bn in debt.

To help secure approval, Kretinsky has offered numerous assurances about the operation of the postal service.

These include promises to honor the universal service obligation (USO) to deliver letters six days a week to all UK addresses for the price of a stamp.

In addition, the UK Government will have a “golden share” in IDS which will prevent Royal Mail’s brand, headquarters and tax residence from changing without its consent.

And there will be no forced redundancies until the end of 2025 or plundering of the pension surplus, while Royal Mail staff have been promised a 10 per cent share of any dividend paid to Kretinsky.

However, the Postal Service’s finances have come under significant strain due to a drop in letter deliveries and the high costs of complying with the USO while maintaining a large workforce.

His service record has also come under scrutiny; Regulator Ofcom fined the company £10.5m last week for failing to meet first and second class mail delivery targets.

Many prominent British companies have succumbed to foreign ownership in recent years, driven by cheap valuations relative to international peers.

Cybersecurity specialist Darktrace, music rights investor Hipgnosis Songs Fund and energy investment group Smart Metering Systems were bought by private equity firms earlier this year.

Investment platform Hargreaves Lansdown, soft drinks maker Britvic and packaging supplier DS Smith have also struck acquisition deals worth billions of pounds.