Second-class mail will reportedly be reduced to just three days a week as billionaire Daniel Kretinsky completes his £3.5bn takeover of Royal Mail.
The businessman nicknamed the “Czech Sphinx” for his inscrutability is planning to bring the UK’s 500-year-old postal service into full foreign ownership for the first time.
But the business mogul, who also owns a 10 percent stake in Sainsbury’s and almost a third of West Ham football club, could already be considering plans to cut Royal Mail’s current service.
Currently, Royal Mail is required to deliver first and second class mail to every address in the UK six days a week as part of its universal service obligation.
However, Mr Kretinsky, 48, reportedly wants to keep the six-day service for first class mail only – which would attract a higher premium, according to the Sunday Times.
It is thought that shifting second-class letter delivery to every other day would save the company £300 million a year.
However, the change would need to be approved by regulator Ofcom.
Mr Kretinsky’s EP Group has offered Royal Mail parent International Distributions Services (IDS) Ltd 370p per share, up from 320p per share last month.
But Mr Kretinsky’s offer comes at a time of extreme pressure for the Royal Mail, which is facing backlash over suggestions it could not deliver first class letters every other day to save money.
The proposal also calls for 1,000 jobs to be eliminated through voluntary layoffs.
It is a departure from an earlier proposal to scrap Saturday deliveries entirely, which was met with strong criticism from government and opposition MPs alike.
IDS is ready to accept the deal – as long as the EP group agrees to a number of demands that would protect Royal Mail’s 500-year-old British heritage, such as keeping its headquarters and taxation in the UK.
Click here to resize this module
The EP Group also states that it will protect workers’ rights and continue to recognize the unions representing both Royal Mail and GLS employees.
The 508-year-old postal service was privatized in 2013 but has struggled financially and seen its stock price plummet.
Annual results from IDS – which also owns a profitable European parcels business – next week are expected to reveal Royal Mail’s poor performance as the company loses almost £1m a day.
Vince Cable – the Liberal Democrat politician who spearheaded privatization – this week defended his actions, which at the time accused the government of selling off the company on the cheap.
He said recent stock performance confirms the decision to sell at this price. Mr Kretinsky’s offer is just 40p above the share price of 330p in 2013.
“It is a company with very serious problems stemming from the decline of its core business.” [letters]” Mr Cable told the Mail.
Kretinsky has amassed his £7.3bn fortune across a range of industries, but made much of it by buying unwanted coal, gas and other fossil fuel assets in a race against the green transition.
The businessman has until May 29 to formalize his takeover of IDS.
Click here to resize this module
The postal service says the peak of 20 billion letters sent in 2004/05 fell to seven billion last year and that a further fall is expected, although the number of addresses in Britain rose by four million over the same period is.
As a result, postal workers are delivering fewer letters to more addresses – a model that is unsustainable in its current form, according to Royal Mail.
The company says the cost of meeting its Universal Service Obligation – the legal requirement to deliver mail six days a week – is up to £2 million a day.
Royal Mail’s perilous financial situation was not helped by workers quitting several times between May 2022 and July 2023 amid a dispute over proposed pay rises at the height of the cost of living crisis.
Postal workers’ wages were frozen in 2021 and they were offered a two per cent rise plus a one-off payment of £250 – which the CWU union rejected given inflation rates of around nine per cent.
This led to the now infamous images of cages upon cages of undelivered mail lying outside postal depots across the country – and eventually Royal Mail persuaded unions to support a 10 per cent pay rise and a flat rate payment of £500.
Click here to resize this module
Still, the service has since cut about 10,000 jobs – including 6,000 layoffs and thousands of other workers who were not replaced when they left.
Amid rising costs and competition from other couriers such as DPD, Yodel, Evri and Whistl gobbling up its customer base, Royal Mail reported a loss of £1.044 billion in the year to March 2023.
Results for last year are expected any day – but half-year results to September show an operating loss of £383m, down from £278m last year.
This does not include the period in which Royal Mail was fined £5.6 million by Ofcom for failing to meet its delivery targets.
Only IDS’s international shipping division, Amsterdam-based GLS, is profitable, helping to offset the problems of the UK business.
Kretinsky already owns part of a European postal service, the Netherlands’ PostNL – leading to speculation that he could try to merge the two.
He is also already involved in several British companies – and is considered something of an Anglophile with a great interest in Great Britain and its history.
The bulk of Kretinsky’s wealth comes from his control of energy giant EPH, which has power stations in Devon, Lincolnshire, North Yorkshire and Northumberland.
A sports fan, he has been chairman of his youth club, 37-time Czech champions Sparta Prague, since 2004 and owns 27 percent of West Ham.
He is involved in the French edition of Elle and previously owned part of Le Monde. The billionaire is also considering a bid for the Telegraph.
He and his girlfriend Anna Kellnerova, an heiress and show jumper, are one of the richest couples in the world.
At 27, she is one of four children of Petr Kellner, who was the richest man in the Czech Republic until he died in a helicopter crash in Alaska in 2021 at the age of 56.
But it remains to be seen whether Kretinsky is a friend or an enemy – at a time when Royal Mail’s reputation is in tatters.
According to YouGov, less than half of the British public have a positive impression of the UK’s main postal delivery service.
Last year, former Ocado boss Simon Thompson stepped down as boss and the company was looking for its fourth leader in four years.
And the rising costs of sending letters and packages over the network, which have risen exponentially since privatization, are not helping its declining reputation.
Last month the price of a first class stamp was increased to £1.35 and a second class stamp increased to 85p. Two years ago they cost 85p and 66p respectively.
In 2015, Mr Kretinsky bought the 15-bedroom Heath Hall in Hampstead for £65 million and once rented it out to Justin Bieber for £27,000 a week during a UK tour.
The UK government said it was “following these developments closely” and would “work with the bidder in due course to explain our expectations for the future of Royal Mail”.
“Our priority is to ensure Royal Mail customers receive the service they deserve… regardless of ownership,” it said on Wednesday.
But Chancellor Jeremy Hunt is concerned about possible foreign takeovers of British institutions in the wake of the Thames Water crisis, which could still be renationalized because investors refuse to pump additional money into the provider.
Thames, which has debts of £18 billion, could be transferred to state ownership if it is unable to find cash in the short term. However, the company wants permission to increase bills by 40 percent, pay lower penalties and continue paying dividends to shareholders.