Royal Mail raid to deliver nearly £150m in fees to bankers and lawyers
Royal Mail
Czech billionaire Daniel Kretinsky’s debt-fuelled raid on the Royal Mail is poised to deliver a £150m fee bonanza for an army of advisers.
The two sides will shell out the huge sum on the bankers, brokers, lawyers, PR professionals and other consultants they enlisted to help negotiate Mr Kretinsky’s controversial £3.6bn takeover of International Distribution Services (IDS), the parent company of Britain’s postal service.
The giant payday has been revealed in a pile of documents that the two sides have to submit to the London Stock Exchange as a condition of a tie-up that was hammered out in a matter of weeks.
Mr Kretinsky’s swoop will result in the Royal Mail falling into private hands for the first time in its 508-year history. It will also be the first time that any country has allowed its postal service to fall under the full control of a foreign entity.
The tycoon’s investment vehicle EP Group is to pay a total of £89m on a team of merger and acquisitions specialists, more than half of which will go to a syndicate of investment banks that are financing the deal.
BNP Paribas, Citibank, Societe Generale, and Unicredit will share £48m of fees for providing a £2.8bn short-term debt package funding the bulk of Mr Kretinsky’s bid. BNP and Citbank, along with JP Morgan Cazenove will also receive their share of a further £22m for giving financial and corporate broking advice.
Some £12m is being spent on legal expertise from American law firms Kirkland and Ellis and Paul Weiss, while the public relations outfit FGS Global will be awarded £2m.
IDS has meanwhile racked up a bill that could top more than £60m on its short-lived defence.
The board, led by chairman Keith Williams, rejected Mr Kretinsky’s initial 320p-a-share offer in April.
Daniel Kretinsky's investment vehicle EP Group is to pay a total of £89m on a team of merger and acquisitions specialists - David W Cerny/Reuters
However, within just over a month it had agreed to an improved 370p-a-share bid that will result in its borrowings more than doubling to £4.5bn from £1.7bn currently.
The company will hand £36m to a trio of investment banks: Barclays, Bank of America Merrill Lynch and Goldman Sachs. Lawyers led by “magic circle” firm Slaughter and May will land £12m and communications experts at Headland are in line for a £1.3m payday.
Documents reveal that IDS may choose to hand out an additional £5.5m of so-called discretionary fees to its consultants.
The takeover remains subject to a national security review, which will investigate whether the decision to hand over a vital national asset to a foreign private equity firm represents a threat to Britain’s interests.
In an attempt to placate concerns that service levels would be diminished under Mr Kretinsky’s ownership, EP Group has made a series of guarantees including the retention of the Royal Mail brand, its UK headquarters, and its UK tax base.
Fears over Royal Mail’s long-term future
The billionaire, who is known as the “Czech sphinx”, has also offered to honour employment rights with unions and promised not to separate IDS’s profitable parcels arm from its core loss-making letters service.
However, the pledges expire after five years, raising concerns about the long-term future of the postal service.
Dave Ward, boss of the Commercial Workers Union, which represents Royal Mail’s 112,000 UK frontline workers, has said that the commitments do not go far enough.
Following a meeting with EP Group earlier this month, Mr Ward said: “We made it very clear that the current commitments ... are neither strong enough or long enough.”
He added: “We do not support a foreign equity company taking over Royal Mail. At the same time, we have absolutely no confidence in the current board of the company.”
The deal remains subject to shareholder approval.
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