(Bloomberg) -- The owner of Britain’s Royal Mail is inclined to accept a £3.5 billion ($4.4 billion) non-binding bid from Czech billionaire Daniel Kretinsky as it struggles to modernize the beleaguered postal service.

Parent company International Distributions Services Plc said the board has indicated to Kretinsky’s EP Group that it would probably recommend an offer at the 370 pence per share value proposed. That’s after strongly rejecting its previous offer and promising higher profits from the planned liberalization of postal regulations.

IDS shares jumped as much as 23% to 335 pence, before paring gains to close under 315 pence — well below the potential offer price.

“This is a long, long way from being a takeover that can actually happen,” said Mark Kelly, chief executive officer of MKP Advisors, citing the possibility that a foreign purchase of a strategically important UK asset might be blocked. 

EP Group previously made a non-binding proposal of 320 pence per share that was rejected by the board, which said it undervalued the business, partly because it didn’t consider any impact from changes to British rules over letter delivery.

Read More: Royal Mail Owner Says Kretinsky’s $3.9 Billion Bid Too Low

After the first offer was rejected, EP said private investment was crucial for Royal Mail, which has struggled to cope with changing trends in deliveries. Kretinsky has been building his stake in the company over the last few years and now owns more than 27% of the business.

Kretinsky’s latest offer is 360 pence in cash, a 2 pence per share final dividend and an 8 pence a share special dividend to be paid when the deal completes.

Royal Mail is grappling with a decline in letter-writing and the rise in parcel deliveries due to e-commerce. Members of the Communication Workers Union voted to accept a new pay deal last year after months of strikes, during which it accused management of prioritizing parcels over letters.

The company has also pushed for the government to relax rules that force it to deliver letters on Saturdays, which it has said is unsustainable. This was rejected by the government last year. Royal Mail asked UK regulators last month to swiftly cut back its legal obligation to deliver letters across Britain six days a week, in an effort to fend off Kretinsky. The regulator is considering reforms.

IDS Chairman Keith Williams said in a statement Wednesday it was “regrettable” that the government had not engaged on plans to relax strict rules around delivering letters. This, he said, would “improve our financial position and ensure that Royal Mail could provide an economically sustainable service to the British public.”

Read More: Royal Mail Fined £5.6 Million for Late Delivery of Letters

Czech Sphinx

In recent years, Kretinsky — known as “the Czech Sphinx” for his inscrutable approach to investing — has been diversifying away from the energy industry and has quickly built up a portfolio of assets across Europe. In the UK, he also has stakes in grocer J Sainsbury Plc and Premier League football club West Ham United. In France, Kretinsky’s consortium has taken control of grocer Casino Guichard Perrachon SA, alongside media investments. 

A bid for the former state-owned business could face opposition from some UK politicians who have previously voiced concerns about the stake that Kretinsky already owns. 

EP Group has agreed to offer undertakings to “protect key public interest factors and recognise Royal Mail’s status as a key part of national infrastructure,” IDS said. These include continuing to send first-class letters six days a week.

Jonathan Reynolds, Labour’s shadow business secretary, called on Kretinsky to commit to certain safeguards to protect the business. “Royal Mail is as British as it gets, and Labour will take the necessary steps to safeguard its undeniable identity and place in public life,” he wrote in a letter on Wednesday.

The deadline to make the bid official — imposed by UK takeover rules — has been extended to May 29.

EP Group declined to comment.

(Updates with additonal detail throughout. A previous version corrected the spelling of Kretinsky’s name.)

©2024 Bloomberg L.P.