Parcel giants bid for Royal Mail’s Euro arm
ROYAL MAIL is under intense pressure from the Treasury to sell its successful European parcels business, GLS, as well as billions of pounds worth of property.
Ministers and officials have told Allan Leighton, Royal Mail’s chairman, that the company must raise cash to help fill the pounds 4bn hole in its pension fund. “There is no way that we can simply write a cheque for billions to sort out the pension fund when the company is sitting on assets worth a fortune,” said a government member.
Leighton has received approaches from the world’s largest logistics businesses, FedEx, UPS and TNT, all of which want to buy GLS. “We could sell it tomorrow,” said an executive close to Royal Mail.
Leighton is determined to retain GLS. He believes Royal Mail’s future prosperity relies to an extent on its ownership of an unregulated, international business such as GLS.
He can resist pressure from the Government even though the company is state owned. Since 2001 Royal Mail has been a PLC, which means its management has complete autonomy. Ministers would have to sack Leighton to force their will on the company.
It is understood that Leighton may ultimately compromise, and dispose of around a third of GLS to one of the international giants. This would lead to a significant injection of capital into the business without breaching the Government’s pledge that it will not privatise Royal Mail during the current parliament.
GLS, which employs 14,500 people and is based in Amsterdam, made profits last year of pounds 61m on turnover of more than pounds 900m. However, it is growing fast and Royal Mail believes it is worth more than pounds 1bn. “It’ll be worth a couple of billion euros before very long,” said an executive.
Royal Mail also has massive property assets. These have a gross value in its accounts of pounds 2.2bn, but may be worth pounds 5bn. “It’s difficult to obtain a precise estimate from the company,” a minister complained.
Leighton also opposes a sale of the property. He would prefer to borrow against the security of the assorted buildings and land, rather than sell them and lease them back.
No decision will be taken on what disposals will be made until after the postal regulator, Postcomm, issues its final ruling at the end of November on how much Royal Mail can increase its tarriffs in the years from 2006 to 2010. Both Royal Mail and the Government view Postcomm’s preliminary proposal, made in the summer, as excessively harsh. Leighton wanted to increase the price of a first-class stamp from 30p to 48p by 2010. Postcomm’s preliminary recommendation was for a rise of just 4p.
Royal Mail has told Postcomm that its aggregated cash loss over the four years would be up to pounds 1bn if the regulator’s recommended controls were implemented. “We could not cope with that, especially in view of the pension problem,” said an executive.
The company wants the ability to charge its letters customers more, so that it can generate enough cash to pay for a pounds 1.6bn programme of investment in automation and raise its pension contributions. “The more cash we can generate to put into the pension fund, the less the Government has to put into it,” said an executive.
