ALEX BRUMMER: Daniel Kretinsky faces arduous path to Royal Mail

Scrutiny: Czech billionaire Daniel Kretinsky

Keir Starmer is not known for loose language. So it was fascinating to hear him cautioning against ‘flogging off’ vital assets when unveiling plans to make Britain a green energy powerhouse.

The Prime Minister doesn’t appear to sit in the camp which argues that selling the ‘crown jewels’ to foreign buyers shows confidence in Britain.

It should come as no surprise that the Government has decided to probe the £3.6billion bid for the Royal Mail by Czech billionaire Daniel Kretinsky by invoking the National Security & Investment Act.

There has been a vain belief on the board of the Royal Mail owner International Distribution Services (IDS), among advisers and bankers (set to collect £146m of fees) that the deal rapidly could be completed.

The hope was it could be done under the radar in the aftermath of the election.

Confidence was supported by the 2022 probe of Kretinsky – dubbed the ‘Czech Sphinx’ – as he built a 27.5 per cent IDS stake.

No security threat was found because of links to Russia or any other state.

If one looks at the way that Whitehall has deployed the act so far, it has only used the powers to interfere with deals when there is fear of tech transfer to potentially hostile nations such as China.

Often it is forgotten that the act has a much broader remit. It draws lessons from the powerful and uncompromising US Committee on Foreign Investment.

Japan’s Nippon Steel currently is being stalled in its ambition to acquire US Steel by Joe Biden’s White House.

With determination, the sale of Royal Mail could face a public interest test in Britain. The Cabinet Office will seek to establish whether there is a link between Kretinsky, the Slovak gas pipelines concern Eustream and Russia.

There apparently is no such direct relationship. However, Kretinsky is not bidding alone. His partner, J&T Capital, is an offshoot of a less-than transparent Slovak group of which much less is known.

Understanding J&T ought to be a critical part of the scrutiny.

An immediate consequence of ‘calling in’ the deal is that the City referee, the Takeover Panel, has suspended the August 4 timetable for an offer to be finalised.

Panel rules are on hold until the regulatory hurdles have been cleared.

And in the meantime the Kretinsky advisory bandwagon rolls on. It is understood his team are keeping in close touch with Business Secretary Jonathan Reynolds, who will be anxious to tie down firm undertakings made between Kretinsky and the company.

Among the items to be covered are the Universal Service Obligation (USO), jobs, headquarters and the future role of the main employee group the Communications Workers Union.

There is a concern that the five-year standstill is not long enough to be a defence against the defenestration of the Royal Mail.

Moreover, Kretinsky, having established a dialogue with the trade union, plans to keep on talking.

All of this is taking place against a fascinating background. To restore profitability the Royal Mail needs regulator Ofcom to approve changes to the USO.

A key change would be an end to the requirement that second-class mail be delivered six days a week.

A new approach could add up to £300m to £350m in earnings to the Royal Mail. That would mean Kretinsky would have to considerably raise his bid price.

Important lessons can be learnt from the US. One Boston-based American investor explains there is a severe risk of loss of business unless Ofcom acts speedily.

The US Postal Service, facing many of the same challenges, has become a problem for Washington. A private sector competitor, UPS, has stolen the postal service business by deploying better technology, logistics and tracking.

In the UK Apollo-owned Evri (formerly Hermes) is seeking to do the same to the Royal Mail.

If the Government is serious about ending the sale of vital enterprises overseas then the best financial way of blocking an unwanted deal is to change the USO mandate.

Kretinsky, J&T and advisers face a long and arduous path to winning.

The big question now is whether they can stay the distance.