UK Royal Mail showdown with Brown: Non-executives threaten mass resignation if Treasury does not approve pounds 1.5bn rights issue
The seven non-executive directors of the Royal Mail have issued a dramatic ultimatum to Gordon Brown, the chancellor: approve a pounds 1.5bn cash injection for the business or they will resign en masse in just two and a half months’ time.
They are backing Allan Leighton, the chairman of Royal Mail, who is proposing a rights issue in which additional shares would be sold to the Government, which already owns the company. Of the money raised, pounds 1bn will be injected into the Royal Mail’s pension scheme and pounds 500m spent on automating the sorting of letters. Simultaneously, Leighton wants 20 per cent of the shares in Royal Mail to go into an employee trust in order to incentivise the 200,000 staff to support a modernisation programme, which could include more redundancies on top of the 30,000 already announced.
The non-executive directors are among some of the most heavyweight figures in the City. They are: Sir Michael Hodgkinson, a former chief executive of BAA, Richard Handover, the ex-chairman of WH Smith, David Fish, the chairman of United Biscuits, Helen Weir, group finance director of Lloyds TSB, Bob Wigley, the chairman of Merrill Lynch Europe, Lady Prosser, a Labour peeress, and John Neill, the chief executive of Unipart.
The directors are also fearful that Royal Mail’s pounds 4bn pension deficit is so large that if the chancellor does not approve the investment plan they might not be able to sign off the company as a going concern.
Credit Suisse, the investment bank advising the Department of Trade & Industry, which oversees Royal Mail, said four weeks ago that Leighton’s plan is “investable”. It has also been approved by Alan Johnson, the trade and industry secretary who is responsible for Royal Mail. He has referred it to Brown.
The directors’ terms of office expired at the end of March and they have agreed to three-month extensions until the end of June. It is understood that they will either sign up for a further three years if the plan is approved, or depart if it is not.
A spokesman from the Treasury confirmed the proposal had been passed on by the DTI and that it is being examined by its finance and industry directorate. The spokesman said: “I cannot comment more than that at this stage, I am afraid.”
One source close to Royal Mail said: “We have heard nothing except gossip on the grapevine. I think the trouble is not the proposal, which is a great investment for the country, it is that Gordon has to find the money.
“It would be a mistake to say that this is just a negotiating tactic. It is deadly serious.”
However, the directors would not talk publicly and some are thought to be nervous about antagonising Brown. “I would not describe this as a threat. I mean you don’t threaten the Treasury,” said one source close to them.
The executive directors who run the business, led by Adam Crozier, the chief executive have issued no ultimatum and intend to stay at their posts, whatever happens. Leighton’s contract expired in January and he has not decided what to do. Royal Mail is being advised by Morgan Stanley and NM Rothschild.
On May 18, Royal Mail will report its annual results, which are expected to show a pounds 500m profit. This will be the second year in which it has been substantially in the black after several years of losses. If its profits are that high, they will trigger incentive payments to staff of pounds 400 each.
