UK Approves Daniel Kretinsky's $6.7 Billion Bid for Royal Mail Owner, FT Reports

The UK government has given the green light to Daniel Kretinsky's $6.7 billion bid for Royal Mail Group, the owner of Royal Mail, as reported by the Financial Times. This acquisition marks a significant shift in the UK's postal services sector and has implications for both the industry and the broader economy.

Kretinsky, a Czech billionaire and co-founder of the private equity firm KKR, has a track record of turning around struggling businesses. His ownership of Royal Mail could lead to improved efficiency, increased competition, and potential job losses. However, the privatisation of Royal Mail in 2013 has already resulted in increased competition and improved services, with Royal Mail's market share dropping from 90% in 2013 to 70% in 2021. Kretinsky's ownership may further drive innovation and investment in technology, benefiting both consumers and businesses.



The broader economy may also see benefits, as increased competition and improved services could lead to lower prices and better quality for consumers, while businesses may experience faster and more reliable delivery services. Additionally, Kretinsky's investment in the UK could have positive spillover effects on the broader economy, such as job creation and increased foreign direct investment.

Kretinsky's acquisition of Royal Mail aligns with his broader strategy of investing in logistics and e-commerce companies. This move expands his portfolio to include a major player in the UK's postal services, which has been privatized since 2013. Kretinsky's investment in Royal Mail follows his previous acquisitions of Groupon and Wolt, indicating a focus on digital platforms and delivery services. By adding Royal Mail to his portfolio, Kretinsky gains access to a well-established network of postmasters and letter boxes, dating back to the 16th century. This acquisition also positions Kretinsky to capitalize on the growing online shopping market, estimated at 10% per year.



The origins of the post office date back to the 16th Century when Henry V111 encouraged the development of a network of postmasters across England. This network became available for public use in 1635 under the reign of Charles 1st. Stamps were introduced in 1840, followed by the first letter boxes in 1852. In 2006, it lost its coveted monopoly of post, and while the attempt to part-privatise the post office in 2009 failed, the coalition government announced its plans for a full privatisation in 2010. As part of the sell-off around 150,000 employees will be given shares, worth at least £2000 each (Source: ITV.com).

A significant argument in favour of privatisation is that Royal Mail will be free to raise capital to invest in much needed new technology which will enable it to compete against rivals such as TNT. With the growth of online shopping (estimated at 10% per year – source: Retail Research) the newly privatised Royal Mail will be able to compete more effectively for a share of this growing market.



Indeed, the business secretary at the time, Vince Cable, believed that full privatisation was the only way to make the Royal Mail a sustainable business, pointing to the already successful privatisation of postal services in Germany in 1994, and Austria in 1999.

There are several other theoretical benefits of privatisation. As well as being able to access capital for investment, and of course providing much needed funds to the Treasury, efficiency improvements are also likely to follow, including improved allocative efficiency as prices will be allowed to correspond to the marginal cost of service supply. It is also likely that there will be an increase in productive efficiency, leading to improved services and lower costs. The privatisation of Royal Mail in 2013 was a significant shift in the UK's postal services sector, and Kretinsky's investment signals his confidence in the potential of this market.

In economic terms, the desire to privatise can also be seen through the lens of 'contestable markets'. This theory posits that efficiency in a market arises from the threat of competition rather than its existence. In the case of Royal Mail, the introduction of competitio