The shadow of the Sphinx looms large over a nondescript urban depot in north London. You could fit two football pitches on to the vast King’s Cross site – a rarity in this densely populated part of the capital – yet it makes up just a fraction of a vast freehold estate, the keys to which are about to be handed to the billionaire Daniel Křetínský.
Known as the Czech Sphinx, because of his inscrutable demeanour, Křetínský is poised to complete his conquest of Royal Mail, via a £3.6bn takeover of its parent company, International Distribution Services (IDS).
The government’s blessing for the deal, given last week, will make him the first individual to control Britain’s postal service since it was privatised in 2013. Indeed, he will be one of just a handful to have held sole dominion over it since King Henry VIII, who founded it in 1516.
Křetínský’s own kingdom will comprise approximately 1,800 properties, covering about 300 hectares (741 acres), more than twice the footprint of Hyde Park. The Parcelforce London central depot in King’s Cross will be one of the jewels in his crown.
Royal Mail put the site up for sale last year, as part of a plan to move its operations to a new industrial park in Tottenham. The property was withdrawn from the market in July 2023 amid volatile conditions, but IDS confirmed to the Guardian that it is up for sale again.
Land Registry records show that in July this year, after accepting Křetínský’s offer, IDS transferred the site between two group companies, with newly created IDS Propco 1 paying £90m to Royal Mail Group Ltd.
However, property experts said the value of recent residential and commercial developments in the same area indicate the plot could be worth significantly more, particularly if the new owner can secure planning consent in advance of finding a buyer. The formation of a second company, IDS Propco 2, suggests similar transactions may be afoot.
In April, when IDS’s board was still defending a £3.1bn offer from Křetínský, the company argued that its suitor had underestimated the value of its “extensive” land portfolio.
The value of the company’s freehold properties is pegged at £1.845bn, according to its latest annual report, before factoring in the value that could be unlocked by securing development consent on the most desirable plots.
One person familiar with Royal Mail’s business model believes the opportunity afforded by the freehold estate means Royal Mail may still have been undervalued at the final deal price of £3.6bn.
“Royal Mail has a vast amount of freehold property and he [Křetínský] has an awful lot of debt,” the source said – a reference to the fact that EP Group has taken on about £3bn of loans, helping to finance the takeover.
They pointed to the precedent set by the supermarket chain Morrisons, which sold freehold properties and leased them back in a £331m deal that was used to reduce its debts. “He could do a deal to sell some of the freehold off to a pension company or a property developer and take the cash back, with the lease becoming an operating cost.”
Susannah Streeter, the head of money and markets at the stockbroker Hargreaves Lansdown, thinks land sales might be precisely what Křetínský has in mind. “It is likely that the potential to restructure and sell off underused land will be pursued under new ownership,” she said.
Streeter pointed to Royal Mail’s £193.5m sale in 2017 of a portion of its Mount Pleasant site about a mile south of the King’s Cross depot, as well as the sale in 2014 of a London sorting office in Paddington.
“It’s likely that management will consider similar opportunities in the future, especially given the company is still looking to right-size infrastructure to cope with a dwindling number of letters being posted,” she said.
Land sales make even more sense in the context of Royal Mail moving to install Amazon-style lockers accessible to the public and shift parcel-sorting to enormous “super hubs” in Cheshire and Northampton, reducing the need for some local sites.
One City analyst, who asked not to be named, raised a more extreme scenario, one in which Křetínský join the ranks of private equity investors who have rescued much-loved businesses, only to walk away unscathed when it all blows up.
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“If it were to go bust and you had structured things in such a way where you had lent money into the business and secured it on key assets [such as freehold property], if the business can’t repay the debt, you seize the assets,” the analyst said.
“That’s how you could extract value out of administration, as a preferred creditor. You see it time and time again with private equity.”
Past examples have included the collapse of Monarch airlines, where investment firm Greybull was accused of structuring its supposed rescue in a way that allowed it to exit with a £10m profit.
Sources close to the company denied this at the time, although they conceded that Greybull had not lost out substantially either. Another salutary example from the past is the £18m that private equity owner BC Partners walked away with after the collapse of Phones4U.
The analyst pointed out that, unlike with a small airline or a phone retailer, the government would have to step in to save Britain’s postal service in the worst-case scenario.
“This is the sort of thing the government should be concerned about. If the key real estate has been seized, you can just say to the government that they need it to run the service so they need to buy it. Or you can redevelop it. It’s a nice each-way bet.”
EP declined to comment but sources close to the business said its model was different from private equity and included safeguards that would ensure IDS’s credit rating did not drop below that of the wider group.
Křetínský has also been more than forthcoming in making commitments to the government – and to the unions – to reassure them about his intentions.
These include a golden share for the government and undertakings specifically designed to prevent asset-stripping, control debt, and ensure no disruption to the group’s “universal service obligation” that requires it to deliver nationwide, six days a week, while keeping the communications service affordable.
But some of the crucial pledges – critically, one that limits the raising of new debt secured against Royal Mail assets – are time limited to five years or less: barely the blink of a Sphinx’s eye.
Jérôme Lefilliâtre, a French journalist who wrote the book Mister K about Křetínský, said he was surprised by the swoop on Royal Mail because the billionaire had told him he was more interested in property, media and retail. “The theory about English real estate … I like it,” he said.
The Czech investor made much of his estimated £6bn fortune betting, correctly, that unfashionable fossil fuel assets still had life in them. According to Lefilliâtre, the tycoon loves to show he can turn around failing businesses, to spot an opportunity for profit that others have missed.
But if he cannot, Lefilliâtre believes, he would have no qualms about pulling the plug. “He’s ruthless when it comes to money and business. If he has to make tough decisions he will make them.”
The City analyst put it differently: “You’re handing control to one person and you just don’t know what’s going to happen.”