May 23, 2024
Aspiring lawyers interested in working on large-scale M&A projects should follow the breaking Royal Mail story with interest due to its huge implications for the UK.

How have Royal Mail been performing contextually?

Royal Mail has been criticised heavily over the course of the last few years – for a number of issues.

The number of deliveries being made late has skyrocketed. According to a BBC investigation earlier this year, only 8% of first-class letters (due to arrive the next working date) arrived late ten years ago. Today, over 25% of them fail to turn up on time (in some specific regions, that number rises to over a third).

Some of these letters include crucial information such as missed bills due for payment and NHS health updates – customers have complained of being threatened with eviction as a result, or even missing appointments for cancer treatment. As a result of so many late (or even missed altogether) deliveries, Ofcom fined Royal Mail £5.6m for failing to satisfy the targets it is supposed to deliver on.

There are many reasons for these issues. First, it has been argued that Royal Mail has failed to hire enough staff in recent times, with some sorting offices complaining of extreme pressure and unrealistic expectations on the few employees remaining in their branches.

Furthermore, the growth of more-profitable parcel deliveries (alongside the simultaneous decrease in letter deliveries) has led some branches to significantly prioritise the former over the latter. Ofcom investigated these allegations, and while there was no concrete evidence found for this specific point, it did feel that the general management suffered from ‘insufficient control, visibility and oversight’. 

Another stark issue is profitability – put rather bluntly, Royal Mail is losing a lot of money. Last year, the service lost over £400 million. The general consensus is that the current system is simply unsustainable from a financial perspective amidst changing consumer demands, and so needs major reform.

The most common suggestion being floated around at the moment is the idea that letter delivery times (currently being offer 6 days a week) should be reduced (perhaps to every other working day, or something similar) in order to cut costs. Naturally, many customers have not responded in a particularly positive way. Due to the intensely public nature of the work Royal Mail carries out, it is likely that this debate will reach Parliament for further discussion too.

What is the proposed takeover bid?

Above Royal Mail sits the public company of International Distributions Services plc (often referred to as IDS), a listed company founded in 2013 and based in London. Any takeover of IDS, therefore, would also encompass a takeover of Royal Mail. 

Back in October 2022, Czech billionaire Daniel Kretinsky bought a shareholding in the company worth approximately 25% through his group Vesa Equity. However, two years later, he has returned to the table alongside his EP Group (who have full ownership of Vesa Equity), and offered to buy out the remainder of the company.

Kretinsky’s first bid for the remaining shareholding was £3.20 per share back in April. This was initially rejected, but key stakeholders encouraged further bidding if a price could be agreed. Now, EP Group has returned with an attractive £3.70 per share offering – IDS has now written to its investors recommending that they accept the bid. Chairman Keith Williams has described the deal as ‘fair’, but added that ‘it is, however, regrettable that despite four years of asking, the government has not seen fit to engage in reform of the universal service and thus improve our financial position’. The success of this bid seems almost inevitable given the dissatisfaction IDS maintained with their previous position. 

Even more significant than the asking price to some, however, is the fact that Kretinsky has reportedly agreed to a set of requirements to maintain public confidence in Royal Mail. This likely relates to avoiding an overly intense cutting of services, as already discussed above, alongside points such as keeping the company headquartered in the UK.

Trade union bosses representing postal workers have stated that Kretinsky’s EP Group need to ‘demonstrate an up-front and open commitment to working with the union to completely change the culture in workplaces across the UK, rule out any break-up of the company or raid of the pension surplus. It cannot be right that a key part of national infrastructure is allowed to be owned by individuals or companies who have no vision for the future and no clear plan to put the workforce at the heart of turning Royal Mail around’. 

Kretinsky is no stranger to UK investments, having already invested in key household names of British daily life such as supermarket chain Sainsbury’s.


Boost Your Applications

Receive 1-2-1 application support to jumpstart your legal career!

Get Support

What should aspiring lawyers take from the Royal Mail bid?

There are a number of points to consider here for aspiring solicitors (in particular) and barristers (if specific points become more contentious later). There are already a number of law firms working on this deal. reports that heavyweight Magic Circle veterans Slaughter and May are acting as part of the negotiations – as are huge elite US outfit Kirkland & Ellis (so any solicitors interested in those firms specifically are especially minded to research this deal more).

Naturally, the most obvious practice area present here are financial. M&A is generally one of the most profitable practice areas for many City firms, and the huge scale of this deal (all in all, the bid is now valued at £3.5 billion) means that it is likely to attract a lot of attention. 

A number of points can be considered here. First, how will this deal be financed? Will law firms be involved in raising capital for EP Group through teams such as banking (again, a hugely profitable area of law), and can the firms involved successfully cross-sell those services?

Furthermore, it is worth considering the very public nature of Royal Mail in particular. The government are likely to be much more involved in this deal than most M&A agreements as a result of Royal Mail’s role as a key part of national UK infrastructure. For example, note how the Department for Business and Trade has announced it is ‘monitoring these developments very closely’. Consequently, it is likely that law firm public lawyers are going to be called upon heavily.

Even outside of the explicitly legal work, the highly public nature of this deal means that commercially-minded lawyers will also be likely to provide some opinions on how Kretinsky and EP Group need to go about the deal in order to reassure public confidence (or even settle public anxiety) from a PR perspective – although the steps taken so far (such as the contractual requirements being agreed to) appear a positive development in that direction.


Loading More Content