Why are Royal Mail owner International Distribution Services shares up 8% today?

Shares in IDS, formerly known as Royal Mail, were lifted today when barriers to a significant investor increasing its stake were removed.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors in International Distribution Services (LSE: IDS) got a treat, not a trick, this Halloween. It was not news that the company had reversed its name change and its shareholders would own Royal Mail shares again. Instead, the IDS share price was increasing by about 8%, which must have been a welcome change of pace.

319.80p 5.00p (1.6%) Friday, 24 May 2024 at 16:30:00 British Summer Time

IDS — which owns and was formerly called Royal Mail — shares are down about 50% in price over the last year. Royal Mail is struggling. It estimates it will report an adjusted operating loss between £350m and £450 for the 2022 financial year. UK parcel and letter volumes are declining. Postal workers have been striking over pay, conditions and cost-cutting plans, which include redundancies. Further strikes are planned for the run up to Christmas.

On the other hand, IDS’ international parcel division, General Logistics Services (GLS), is doing well. It should report an operating profit roughly equivalent to Royal Mail’s loss. Part of why Royal Mail shares became IDS shares at the start of this month might well be a desire not to be named after the problem child. IDS stated the reason was to reflect the structure of two separate companies and recognise the increasing importance of GLS.

Vesa Equity Investment in Royal Mail shares

Vesa Equity Investment, a Luxembourg-registered investment vehicle, first bought what was then Royal Mail shares in May 2020. Since then, it has built up its position. By July 2022, Vesa held 22% of the total voting rights in Royal Mail. In August 2022, the UK Secretary of State for Bussiness, Energy and Industrial Strategy, got in touch with Royal Mail to say that Vesa might be increasing its stake to over 25%, triggering a review of the situation under the National Security and Investment (NSI) Act 2021.

Today, the Secretary of State told what is now IDS that he will take no further action under the NSI Act. That presumably clears Vesa to increase its stake in IDS shares. The report of this decision was the trigger event for the rise in the IDS share price today.

Activist shareholder

Since becoming active in 2019 and announcing a reportable stake in French mass-market retail group Casino Guichard-Perrachon, Vesa has been snapping up shares in other retailers. In 2020, it bought stakes in Footlocker, an American sportswear retailer, Macy’s, a US-based department store operator, and Sainsbury’s, the second-largest supermarket chain in the UK. In 2022, it revealed a stake in Fnac Darty, a French entertainment and leisure product retailer.

Vesa is taking sizeable stakes in retail companies and one postal service and courier company. One thing they all share in common is that their share prices have been on broad downtrends for years. Significant positions in companies performing poorly in the markets suggest an activist investor. Activists put pressure on management to make changes to boost shareholder returns. The bigger the position, the more power wielded.

Vesa now has the go-ahead to further increase its stake and influence in IDS. Aside from forcing operational changes, a suggested split of Royal Mail and GLS could be fast-tracked by Vesa, unlocking the value of GLS. Finally, thoughts of a total takeover bid for IDS by Vesa might be entering investors’ minds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James McCombie has positions in International Distributions Services. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »