Royal Mail owner rebuffs bid from Czech billionaire Kretinsky

By Amy-Jo Crowley, Emma-Victoria Farr, Marek Strzelecki and Jan Lopatka

LONDON (Reuters) -Czech billionaire Daniel Kretinsky is working on improving an offer for the owner of Britain's Royal Mail, a source with knowledge of the plans said on Wednesday, after his investment vehicle said it had made a non-binding bid this month which was rejected.

Reuters reported earlier on Wednesday that Kretinsky was exploring a possible bid for London-listed International Distributions Services (IDS), which has seen its market value fall to 2.1 billion pounds ($2.62 billion) over the past few years.

IDS shares jumped when news of the potential bid emerged and they closed 29% higher.

Kretinsky, IDS's largest shareholder with a 27.5% stake, made the cash offer on April 9 and was seeking the board's recommendation but IDS rejected it, his EP Corporate Group said in a statement.

"While EP Group's proposal was rejected by the board of IDS, it looks forward to continuing to engage constructively with the Board as EP Group considers all its options."

IDS said Kretinsky's 320p a share bid "significantly undervalues IDS and its future prospects," and said it was opportunistic.

IDS did not respond to a request for comment.

The UK business ministry also declined to comment.

"Weak financial performance, poor service delivery and a slow transformation, in the face of a market going through structural change, have put the business under unsustainable pressure," EP Group said in its statement.

"With the increasing competition from multinational companies in the UK postal market, private investment in Royal Mail becomes crucial."

EP Group said Royal Mail would benefit "from being able to take a longer-term view" and that it was prepared to support a transformation of the business.

Under UK takeover rules it has until May 15 to make a firm offer for the company.

BNP Paribas, Citigroup and JPMorgan are advising Kretinsky on his bid, the source familiar with the matter said. All three banks declined to comment.

The Communication Workers Union (CWU) said on social media platform X that the bid was a significant moment.

"The truth is handing over the ownership of one of the UK’s most prestigious institutions to a foreign equity investor cannot be right. But neither is the current model or direction of the company," the union said.

IDS shares have fallen by two-thirds from their most recent peak of 571p in June 2021. They opened at 213p on Wednesday.

EP is a 100% shareholder in VESA Equity investment which owns Kretinsky's IDS stake. He founded VESA in 2018 with business partner Patrik Tkac which also has a stake in Sainsbury and Foot Locker, according to VESA's website.

IDS comprises two businesses, including international parcels network General Logistics Systems (GLS) based in Amsterdam, and the Royal Mail business in the UK.

Royal Mail has faced hurdles over the last couple of years with strikes by postal workers, a cyber security incident, and a fine from regulator Ofcom for missed delivery targets, as well as losing a 360-year monopoly to deliver parcels from post office branches.

Any bid by Kretinsky for one of the world's oldest postal firms would follow a buying spree in Europe, including of indebted French supermarket group Casino last year, as well as attempts to buy half of Thyssenkrupp's steel business and Atos’ loss-making IT services unit.

The UK has seen an uptick in approaches for its London-listed companies, which have struggled with low valuations.

A deal could trigger an intervention from the British government under the terms of the National Security and Investment Act, which gives ministers a greater say over deals involving critical infrastructure.

The Department for Business, Energy and Industrial Strategy (BEIS) in 2022 reviewed VESA's plans to increase its about 22% stake in the company at the time to more than 25%.

IDS said revenues grew by 3.8% to 9.45 billion pounds for the nine months ending in 2023, according its quarterly update in January. It expects to make an operating profit in the second half of this year that would offset the 169 million pound loss in the first half.

($1 = 0.8021 pound)

(Reporting by Amy-Jo Crowley, Emma-Victoria Farr and Marek Strzelecki; Additional reporting by Alistair Smout; Editing by Anousha Sakoui, Elaine Hardcastle, Jonathan Oatis and Jane Merriman)