Royal Mail may sell profitable divisions to secure bailout

The Royal Mail may be forced by the European Commission to sell off some of its most profitable businesses in exchange for a Government bailout of its pension scheme, it was reported yesterday.

The Commission is understood to be considering whether the Government's plan to take on the group's pension liabilities constitutes state aid, and if this gives the business an unfair advantage over its competitors, according to the Sunday Times newspaper.

If it does decide the move constitutes state aid, it is thought Brussels may demand the sale of some of the Royal Mail's most profitable divisions, including its European parcels operation General Logistics Systems. The business, which is based in Holland, handles more than one million parcels a day and made a 51m profit in the past six months.

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Lloyds Banking Group and Royal Bank of Scotland were both ordered to make disposals by the Commission after they received a bailout from taxpayers. But having to sell off some of Royal Mail's valuable businesses could hamper Government plans to sell the group.

The Government announced plans last year to sell off 90 per cent of the Royal Mail to private companies, including overseas firms, with the remaining 10 per cent going in shares to postal workers. To make the deal more attractive, it will take over Royal Mail's 8.4bn pension deficit. The Post Office arm of the business will be retained and is likely to be converted into a mutual structure.

A Royal Mail spokesman said: "It is far too early to speculate on any EU state aid outcome. The UK government has not yet lodged a state aid notification. When an application is made, Royal Mail believes that a strong and compelling argument will be put to the Commission."