Private equity group CVC Partners, the second bidder for the UK state-owned postal group Royal Mail has offered to pay nearly £2 billion for a 30 per cent stake, much more than TNT's offer, but both the bids still falls far short of the £3 billion that the UK government is seeking.

In July 2005, CVC acquired a 22-per cent stake in Post Danmark from the Danish State and in 2006 a 49 per cent stake in De Post La Poste (Belgian Post)

The Sunday Telegraph reported that CVC Partners had made an offer of nearly £2 billion for a 30 per cent stake the UK's Royal Mail, which is better than the offer made by TNT.

The UK government's plans to part-privatise the state-owned postal operator had bought angry response from the unions, backbench Labour MPs and Labour Party supporters who have vowed to block the governments proposal to sell a minority stake in Royal Mail to a foreign bidder.

A review conducted by Richard Hopper, a former deputy chairman of Britain's media watchdog, had suggested that the government should close half of its 71 mail centres and barring Royal Mails retail outlets all other operations needed to be part privatised in order to be commercially viable.

The British parliament will vote on a bill to sell a minority stake in Royal in June, which is expected to face opposition even from Prime Minister Gordon Brown's own party.

Although the UK government had injected £3.9 billion last year into Royal Mail, whose sorting system is so outdated that postmen still sort the mail manually by house numbers and street names as they go on their rounds.

Royal Mail's labour cost is 66 per cent and it reflects the high pay doled out to its employees as well as the high number of part time staff  that Royal Mail has.

The government had said that it would take on Royal Mail's large pension deficit of nearly ?9 billion as part of its disinvesting a 30-per cent stake.

CVC has now become the favoured bidder as its proposal involves injecting a substantial amount of money into modernising the postal service provider's technology  and other infrastructure.

CVC is understood to be conducting talks with officials from the Department for Business, Enterprise and Regulatory Reform (BERR) on its offer.

But the going may not at all be easy for CWC, since it is faces stiff opposition from the Communication Workers Union (CWU), who say that the private equity firm is the worst company to hand over Royal Mail to, as it sole objective is profits and CWC would strip the postal company to its bones while making no contributing to the public purse.

Luxembourg-based CVC Capital Partners is one of the top five global private equity firms, with approximately $46 billion in funds for buyouts. It has stakes in six companies in the UK including the sports rights management company Formula One and department store chain Debenhams.

TNT, which had made an undisclosed offer sometime in February, (See: UK government to sell part stake of Royal Mail to TNT) is not only far short of the ?3 billion that the government is seeking, but is focused solely on the Royal Mail's profitable General Logistics Systems (GLS), the European parcels operation.

Its offer is reported to have demanded to have its own people on the board as well as a major say in all the boardroom decisions.

The tenacity of the demands has shocked the UK government as the Dutch group is beset with financial problems and its latest quarter report shows that its profits fell by more than 50 per cent.
In the recent past due to the global economic slowdown, TNT has been cutting costs by slashing jobs and closing many of its offices in the Netherlands and last August, it was rumoured to be on the verge of being acquired by the world's largest logistics company, United Parcel Service for $15 billion.

Even the shareholders of TNT are unhappy at the company trying to acquire a 30 per cent stake in Royal Mail as they feel that with a lower stake, TNT would not have the control required to turn the whole company around.

For the first time in 20 years, Royal Mail made profits of more than £900,000 a day during the first nine months of the 2008-2009 financial year to £7.2 billion even as it closed 2,200 branches since 2000. (See: Royal Mail makes record profits despite recession in the UK)

A trading update covering the nine months to Christmas showed Royal Mail Group making a £255 million operating profit before exceptional costs, compared to £162 million for the whole of 2007-08.