New rival born as Royal Mail edges to privatisation

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Royal Mail was today facing up to the creation of an aggressive new competitor as it took another step on the path to privatisation.

America’s UPS is paying €5.2 billion (£4.31 billion) for the Netherlands’ TNT to create Europe’s leading parcel delivery firm.

The new company will go head-to-head with German-owned DHL to win business in the only part of the moribund mail market that is growing. Letters are on the slide with the popularity of email, but parcels are booming thanks to ecommerce firms such as Amazon.

UPS-TNT will command 18% of Europe’s parcels market, according to figures from research firm Transport Intelligence, compared to DHL’s 17%.

State-owned Royal Mail, which lags with just 5%, has pinned its hopes on building its parcels arm to prove it has a commercial future. It gained a fillip as the Government said it would take over its giant pension fund which will see £28 billion of assets and £38 billion in liabilities transferred to the state at the end of this month.

“This deal is another example of how competitors are moving to seize commercial opportunities which Royal Mail needs to respond to,” said David Stubbs, a postal expert at ESL UK. “Capitalising on the growth in ecommerce distribution is essential to its survival.”

Royal Mail made a £67 million half-year profit in its most recent set of figures, but its letters delivery arm lost £41 million as the nation’s daily postbag fell 6% to 59 million items.

GLS, its European parcels arm and the business’ crown jewel, faces a new squeeze from UPS-TNT. The division was already under threat from Brussels, which could force Royal Mail to dispose of assets to compensate for the pensions bailout if it judged the move constituted state aid. Competition authorities will report back in the next few days.

The Government took drastic action on the pension in an attempt to propel the Royal Mail into the private sector after years of trying.

Accounting rules mean that the liabilities won’t show up on the government books immediately — thereby flattering Chancellor George Osborne’s deficit figures.

Moya Greene, the Royal Mail’s chief executive, is trying to bring down costs without resorting to compulsory redundancies. UPS-TNT aims to slash costs by up to €550 million. Because private equity firms have gone cold on the sector, Royal Mail may end up being listed on the stock market.

Other moves to make the organisation more attractive to investors include letting it hike stamp prices and hiving off the Post Office network into a mutually-owned company.

[arnold cheshire]

so if tnt was the main favourite to buy royal mail and now theyve been bought out whos going to buy royal mail ? ups?