Response to the offer for IDS from EP Group

22 April, 2024

Ian Lance, Co-Head of the Redwheel Value & Income Team, Co-Portfolio Manager, Temple Bar Investment Trust.

We note the statement from the Board of IDS confirming that on 9 April 2024 it received a preliminary and conditional non-binding proposal from EP Group regarding a possible cash offer for the entire issued and to be issued share capital of International Distribution Services plc (“IDS”) not already owned by EP Corporate Group a.s. (“EP Group”) and its affiliates, namely VESA Equity Investment S.à r.l (“VESA Equity”) at 320 pence per share.

Redwheel is third largest shareholder in IDS (behind Vesa and Schroders) and own 63,754,494 shares (6.65% of company) on behalf of our investors as at 19 April 2024. We wish to make the following points in response to the offer from EP Group.

We are in full agreement with the Board, together with its advisers, that the possible offer of 320 pence per share significantly undervalues IDS and its future prospects. Accordingly, we support the Board’s decision to unanimously reject the proposal on 11 April 2024.

We call upon Ofcom to reflect on both the timing and the level of this offer which we regard as opportunistic. The share price of IDS has fallen by 62% from 573 pence on 14 June 2021 to 214 pence immediately prior to the announcement of the potential offer and is still substantially below the IPO price of 330 pence set ten years ago. We believe this reflects the current financial situation of Royal Mail which posted losses of £419 million in financial year 2022/23 and losses of £319 million in the first six months of the 2023/24 financial year. This has meant shareholders have seen very weak returns, and no dividend since September 2022.

We also note that parent company IDS plc’s credit rating of BBB is on negative watch. Royal Mail’s financial position has affected the Group’s credit rating and puts at risk Royal Mail’s financial stability and IDS’ ability to attract funding from the capital markets, the main rationale for the IPO in 2013. We believe that, unless steps are taken to improve the profitability of the Royal Mail, it may not be a sustainable business in the long-term and could remain vulnerable to corporate predators which we believe is not in the interests of shareholders, customers, or employees.

In order to make Royal Mail a sustainable business for the benefit of all stakeholders, we believe steps must be taken to return the business to profitability, and we also believe the Universal Service Obligation (USO) – the legal requirement for Royal Mail to deliver to the United Kingdom’s 32 million addresses six days a week – now needs urgent reform. Letter volumes have declined from 20 billion at their peak in 2004/5 to seven billion in the last financial year and are likely to continue to fall. The USO means Royal Mail must maintain a high fixed cost network without the revenue to sustain it. Ofcom recognised this when they calculated that providing the current USO to the UK has a net cost to Royal Mail of £325m to £675m every year (source: Ofcom). We agree with Ofcom that “providing the USO imposes a significant net cost on Royal Mail and that it is “likely to be unfair” that Royal Mail’s shareholders bear this cost. The scale of the net cost, coupled with the underlying financial performance of Royal Mail, demonstrates the urgency for USO reform. Whilst we do not have a firm view on which of the options for change outlined by Ofcom is more appropriate – we leave that to Royal Mail to propose – we would urge that change to the USO needs to be meaningful, provide long term relief from the material and unreasonable cost burden, and be implemented rapidly.

Finally, we do not believe it is the interests of the shareholders, employees, or customers of Royal Mail for it to be broken up or sold off. Our preferred option would be for the company to remain together, and we believe if Ofcom are willing to reform the USO, it has a sustainable future in which all stakeholders may benefit. We welcome the changes agreed with the Communication Workers Union in July 2023, and note that they are already starting to show genuine results in terms of improved quality of service for customers e.g. sick absence has reduced by c.25% by end of December 2023 compared to prior year (source: IDS). In addition, workers are benefitting from increased recruitment of permanent employees on new, more flexible contracts, and reduced reliance on agency staff.

In conclusion, we believe that progress is already being made to transform Royal Mail into a profitable and sustainable business, but we would urge Ofcom to reform the USO in order to make Royal Mail profitable once more and ensure its long-term sustainability as an independent business which has the potential to benefit all stakeholders.

The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of RWC Partners Limited or of its group companies (together “Redwheel”). Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. This article does not constitute investment advice and the information shown above is for illustrative purposes only and should not be construed as a recommendation or advice to buy or sell any security. No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment.

In case you missed it

Emerging and Frontier Markets

The ‘Fab 4’ become the ‘FOMO 3’

The Redwheel Emerging and Frontier Markets team explores the concentration challenge facing investors today and maps out under‑owned countries, sectors and themes that the team believes offer a richer blend of structural growth and genuine diversification.

27 July, 2026 | 01:48pm

UK Value & income

When it rhymes it pours

Shaul Rosten, Analyst with the Redwheel Value and Income team looks at the striking similarities between today’s market exuberance and the dotcom era, highlighting stretched valuations, record IPO activity and the dominance of the technology sector.

20 July, 2026 | 07:58pm

UK Value & income

Two beautiful games

As England’s World Cup campaign unfolds, the tournament provides a vivid reminder that sensible bets are grounded in probabilities. Supporters know that backing long-shot teams is unlikely to be rewarded, while favouring stronger sides with clear track records is more prudent. In his latest blog, Shaul Rosten of Redwheel's Value & Income team examines how value investing adopts a similar stance, focusing on quality businesses at attractive valuations, rather than richly priced growth narratives with low odds of delivery.

6 July, 2026 | 07:29pm

Disclaimer

Redwheel ® and Ecofin ® are registered trademarks of RWC Partners Limited (“RWC”). The term “Redwheel” may include any one or more Redwheel branded regulated entities including RWC Asset Management LLP, which is authorised and regulated by the UK Financial Conduct Authority and the US Securities and Exchange Commission (“SEC”); RWC Asset Advisors (US) LLC, which is registered with the SEC; RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore; Redwheel Australia Pty Ltd is an Australian Financial Services Licensee with the Australian Securities and Investment Commission; and Redwheel Europe Fondsmæglerselskab A/S which is regulated by the Danish Financial Supervisory Authority.

Redwheel may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document. Redwheel and RWC (together “Redwheel Group”) seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.

This document is directed only at professional, institutional, wholesale or qualified investors. The services provided by Redwheel are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.

This document has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction.

The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by Redwheel; or (iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). Redwheel Group bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.

Redwheel Group uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into Redwheel Group research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of Group and may be subject to change without notice. Redwheel Group is not liable for any decisions made or actions or inactions taken by you or others based on the contents of this document and neither Redwheel Group nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.

Information contained in this document should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the presentation and/or calculation of any projections or estimates contained herein and Redwheel Group does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. There can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this document may be aggregated data of Transactions executed by Redwheel that has been compiled so as not to identify the underlying Transactions of any particular customer.

No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a Redwheel-managed fund.

This document expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.

The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. Any distribution or reproduction of this document is not authorised and is prohibited without the express written consent of Redwheel Group.

Funds managed by Redwheel are not, and will not be, registered under the Securities Act of 1933 (the “Securities Act”) and are not available for purchase by US persons (as defined in Regulation S under the Securities Act) except to persons who are “qualified purchasers” (as defined in the Investment Company Act of 1940) and “accredited investors” (as defined in Rule 501(a) under the Securities Act).

This document does not constitute an offer to sell, purchase, subscribe for or otherwise invest in units or shares of any fund managed by Redwheel. Any offering is made only pursuant to the relevant offering document and the relevant subscription application. Prospective investors should review the offering memorandum in its entirety, including the risk factors in the offering memorandum, before making a decision to invest.

AIFMD and Distribution in the European Economic Area (“EEA”)

The Alternative Fund Managers Directive (Directive 2011/61/EU) (“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.

In relation to each member state of the EEA (each a “Member State”), this document may only be distributed and shares in a Redwheel fund (“Shares”) may only be offered and placed to the extent that (a) the relevant Redwheel fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this document may otherwise be lawfully distributed and the Shares may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Information Required for Offering in Switzerland of Foreign Collective Investment Schemes to Qualified Investors within the meaning of Article 10 CISA.

This is an advertising document.

The representative and paying agent of the Redwheel-managed funds in Switzerland (the “Representative in Switzerland”) FIRST INDEPENDENT FUND SERVICES LTD, Feldeggstrasse 12, CH-8008 Zurich. Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich. In respect of the units of the Redwheel-managed funds offered in Switzerland, the place of performance is at the registered office of the Swiss Representative. The place of jurisdiction is at the registered office of the Swiss Representative or at the registered office or place of residence of the investor.

No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment.The term “RWC” may include any one or more RWC branded entities including RWC Partners Limited and RWC Asset Management LLP, each of which is authorised and regulated by the UK Financial Conduct Authority and, in the case of RWC Asset Management LLP, the US Securities and Exchange Commission; RWC Asset Advisors (US) LLC, which is registered with the US Securities and Exchange Commission; and RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore.RWC may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this audio. RWC seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.This audio is directed only at professional, institutional, wholesale or qualified investors. The services provided by RWC are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.This audio has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction. The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by RWC; or(iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.RWC uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into RWC research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. RWC bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of RWC and may be subject to change without notice. RWC is not liable for any decisions made or actions or in actions taken by you or others based on the contents of this audio and neither RWC nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.Information contained in this audio should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the audio and/or calculation of any projections or estimates contained herein and RWC does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. Forward-looking statements are inherently uncertain, and changing factors such as those affecting the markets generally, or those affecting particular industries or issuers, may cause results to differ from those discussed. Accordingly, there can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this audio may be aggregated data of Transactions executed by RWC that has been compiled so as not to identify the underlying Transactions of any particular customer.The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. The information contained herein is confidential and is intended for the exclusive use of the intended recipient(s) to which this audio has been provided. Any distribution or reproduction of this audio is not authorised and is prohibited without the express written consent of RWC or any of its affiliates.Changes in rates of exchange may cause the value of such investments to fluctuate. An investor may not be able to get back the amount invested and the loss on realisation may be very high and could result in a substantial or complete loss of the investment. In addition, an investor who realises their investment in a RWC-managed fund after a short period may not realise the amount originally invested as a result of charges made on the issue and/or redemption of such investment. The value of such interests for the purposes of purchases may differ from their value for the purpose of redemptions. No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a RWC-managed fund. Current tax levels and reliefs may change. Depending on individual circumstances, this may affect investment returns. Nothing in this document constitutes advice on the merits of buying or selling a particular investment. This audio expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.AIFMD and Distribution in the European Economic Area (“EEA”)The Alternative Fund Managers Directive (Directive 2011/61/EU)(“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.In relation to each member state of the EEA (each a “Member State”),this document may only be distributed and shares in a RWC fund(“Shares”) may only be offered and placed to the extent that (a) the relevant RWC fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this audio may otherwise be lawfully distributed and the Shares may lawfully offered or placed in that Member State (including at the initiative of the investor).Information Required for Distribution of Foreign Collective Investment Schemes to Qualified Investors in SwitzerlandThe representative and paying agent of the RWC-managed funds in Switzerland (the “Representative in Switzerland”) FIRST INDEPENDENT FUND SERVICES LTD, Klausstrasse 33, CH-8008 Zurich. Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich. In respect of the units of the RWC-managed funds distributed in Switzerland, the place of performance and jurisdiction is at the registered office of the Representative in Switzerland.