Vultures circle over Royal Mail

Britain’s privatised mail service is likely to be broken down into ever-smaller parts as investors peel of the most profitable parts one by one.

Proletarian writers

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Proletarian writers

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Five years into its full privatisation, Royal Mail is rumoured to be on the verge of being broken up, with its money-making European parcels operation (GLS) likely to be prised away from the less profitable bits of RM.

The vulture capitalists are smelling fresh meat.

One such vulture, Czech billionaire Daniel Kretinsky, has just made headlines by betting against the odds. Through Vesa Equity Investment, Kretinsky bought 13.1 percent of RM’s total stock. He did so at the height of the pandemic, when the company’s projected earnings were gloomy in the extreme, with JP Morgan actually predicting losses amounting to £311m.

The investment bank has now radically adjusted its predictions, instead anticipating profits of £45m! This volte face in market sentiment means that Kretinsky’s gamble has paid off big time, leaving him sitting on nearly £100m in profits.

Some at least are having a good pandemic.

One possible reason for the better than expected profitability of RM has been the surge in online shopping triggered by the lockdown, with 177m more parcels delivered between April and August than in the same period in 2019, more than compensating for the decline of letter writing.

More generally, the unpredictability of the market, accentuated by the pandemic, is creating the perfect conditions for vulture capitalists to thrive.

Kretinsky may just sit back and enjoy his easy winnings; or he may press on with plans to break up RM, dispose of the less profitable bits and grab the ‘low hanging fruit’.

Or, as analysts at Bernstein more elegantly put it: “We have advocated a cleaner separation between the UK business and GLS to crystallise value.” (The Czech is in the post with tidy bet on Royal Mail by Tom Howard, The Times, 14 September 2020)