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Riddle of the sphinx's move on Royal Mail

27 Jul 2020, 19:03

https://www.thetimes.co.uk/article/riddle-of-the-sphinxs-move-on-royal-mail-0cb6bzmgs

Riddle of the sphinx’s move on Royal Mail
Czech tycoon Daniel Kretinsky’s bold bet could lead to break-up of the ailing postal company
Daniel Kretinsky may want to sell the GLS parcel service

Liam Kelly
Sunday July 26 2020, 12.01am BST, The Sunday Times


JOEL SAGET

Daniel Kretinsky was unusually effusive when he made his first UK investment. The Czech energy billionaire snapped up a coal-fired plant in 2014 that was, he said, a reflection of his “genuine interest in the UK market”.

Less than four years later, however, Eggborough power station in North Yorkshire closed. Kretinsky’s bold bet had not factored in ministers’ eagerness to reduce Britain’s dependence on coal power.

Despite the setback, Kretinsky has returned to making contrarian bets on UK assets — and set the City rumour mill running — with his investment in Royal Mail.

Kretinsky, 45, dubbed the “Czech sphinx” for his aversion to speaking publicly, has built a 12.1% stake in the FTSE 250 company in recent months, sparking speculation that he may call for a break-up of the former state-owned monopoly or take it over.

The owner of Sparta Prague, the biggest Czech football club, makes a habit of buying into distressed companies. This year alone he has bought shares in Macy’s, the American department store chain, and shoe retailer Foot Locker. Other investments include German wholesaler Metro and French retailer Casino.

Royal Mail has been in trouble for years, and the pandemic has done nothing to ease its woes. In the three months after the lockdown, the number of letters sent fell by 788 million — one-third of the volume sent in the same period last year. Though it delivered 117 million more parcels in that time, it is poised to post a loss this year. The shares closed last week at 179.2p, giving it a market value of £1.8bn: a fall of more than 60% from its controversial float in 2013.

Enter Kretinsky, who grew up in Brno. After spending his childhood behind the Iron Curtain he fell in love with western Europe, especially France. While studying for a law degree, he spent a term in Dijon.

He started out as a corporate lawyer at Czech private equity group J&T and the founder of EPH, an energy investor, in which he became a 20% shareholder. A debt-fuelled deal spree across western Europe since has helped him amass a £2.7bn fortune, according to Forbes.

Kretinsky became chairman of Sparta Prague in 2004 and started investing in media nine years later, when he and Slovak business partner Patrik Tkac bought Ringier Axel Springer’s Czech titles, including the tabloid Blesk and Aha! magazine.

City sources said Royal Mail had been caught by surprise when Vesa, the investment vehicle Kretinsky controls with Tkac, disclosed a 5% stake at the start of May. It insists that the departure of controversial boss Rico Back, 65, just two weeks later was unrelated. Chairman Keith Williams has taken over talks with the Communication Workers Union.

A former insider said “the only reason” for Kretinsky’s interest would be to break up Royal Mail and spin off GLS, the profitable, pan-European parcel delivery service Back founded and sold to the former monopoly in 1999. GLS accounted for all of Royal Mail’s £180m pre-tax profit last year.

“It is the jewel in the crown,” the former insider said. “You could pick it apart relatively easily.”

However, Liberum analyst Gerald Khoo said: “GLS is effectively supporting the group’s finances. Take that away and all you have is a loss-making, cash-burning UK business without the balance sheet or finances to fund the necessary restructuring.”

Despite the City gossip, Kretinsky has maintained his sphinx-like silence and declined to comment.

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