That escalated quickly. A day after Royal Mail workers voted to strike over pay, their employer is threatening to perform the splits unless “significant operational change” happens. The UK postal service would go one way, taking its industrial relations disputes and modernisation challenges with it. GLS, the more profitable parcel operation that is run out of Amsterdam and serves continental Europe and North America, would go the other.
This is a hardball move by chairman Keith Williams, even if the first stage of the operation is only a cosmetic change of name for the holding company from Royal Mail plc to International Distributions Services (an ugly name, but at least it’s not Consignia, the ridiculous moniker briefly adopted a couple of decades ago until the mockery became unbearable).
But the serious intent-cum-threat was spelled out starkly. “In the event that significant change within Royal Mail is not achieved, the board will consider all options to protect the value and prospects of the group, including separation of the two companies,” said the statement.
The way Williams tells it, the break-up option merely reflects events on the ground since privatisation in 2013. GLS has grown massively, to the point where it has contributed two-thirds of group-wide operating profits over the past three years. And, since there are few operational links between GLS and Royal Mail, it is unsustainable to expect the vigorous bit to be held back by the laggard, especially now that the Covid whoosh to parcel volumes in the UK has faded.
Put like that, the separation case is indeed coherent. GLS was the junior partner at privatisation but this year’s forecasts see it making as much as £350m at the operating level versus a break-even position for Royal Mail, assuming no strikes, after a quarter in which losses ran at £1m a day. It’s a far cry from last year’s pandemic-inspired £412m of operating profit at Royal Mail.
So, yes, two very different businesses are housed under one roof and there’s an obvious candidate as a potential buyer for GLS. It is the group’s own 22% shareholder, Daniel Křetínský, the Czech billionaire who many assumed was always attracted by the thought that the overseas operation would shake loose one day.
Yet Williams must also know that privatisation did not remove Royal Mail from the political arena altogether. It is a regulated business with an obligation to deliver letters to every address in the country at a uniform price. Removing GLS from the group would raise many questions – the level of debt to be left with rump Royal Mail, for starters. The stock market, according to UBS’s sum-of-the-parts calculations, currently values the UK postal service at a negative £1bn, so should it get a dowry to adjust to independent life? That question would be a quarrel in itself.
A happy outcome would see the pay dispute resolved quickly, which is not impossible since there hasn’t been a major strike at Royal Mail since privatisation. But the two sides’ positions currently look miles apart. On one hand, the CWU union argues that a group that only recently sprayed £400m on shareholders via buy-backs and special dividends can afford a real-terms pay rise. On the other, management says investors’ prizes came, in effect, from a GLS business that it is prepared to flog if push comes to shove. The middle ground is very hard to spot.
Another biotech opts for NYSE
A successful biotech business worth £2.5bn has already outgrown the Alternative Investment Market (Aim), London’s junior stock exchange, it could be said. So it’s reasonable for Cambridge-based Abcam to seek new pastures in search of “liquidity”, meaning more people trading its shares.
Unfortunately, Abcam has decided that New York is that place. It plans to convert its secondary listing on Nasdaq into a sole listing and ditch its presence on Aim.
It would not be the first UK-listed biotech firm to emigrate, but the timing is terrible. The UK is trying to hype London’s tech-friendly credentials and still has a (fading) hope of getting SoftBank to re-list Arm Holdings, the chip titan, here.
The prime political cheerleader in the patriotic push used to be one Rishi Sunak. Maybe the prime ministerial candidate could demonstrate his powers of persuasion by having a word before Abcam’s shareholders vote.