Minister orders Consignia to scrap foreign expansion

The Government has ordered Consignia to abandon its attempts at further overseas expansion after the failure of its merger talks with the Dutch postal giant TPG, it emerged yesterday.

Douglas Alexander, the Industry minister with responsibility for Consignia, told MPs that the state-owned company's priority in future would be to concentrate on its loss-making domestic operations with the aim of returning them to profitability.

"I don't think the focus of Consignia should be acquisitions or individual commercial partnerships," he told the Commons Trade and Industry Select Committee.

Mr Alexander revealed that talks between Consignia and TPG had gone on for eight months and centred on a merger of the Royal Mail and Parcelforce with TPG.

They began in July last year after the Secretary of State for Trade and Industry, Patricia Hewitt, gave Consignia authorisation to enter negotiations. Ms Hewitt subsequently met TPG's management on one occasion. The talks ended this March after the two companies failed to reach agreement.

Martin O'Neill, the Labour chairman of the select committee, suggested to Mr Alexander that the talks had failed because the deal would have amounted, not to a merger but a takeover of a "beleaguered and debilitated" Consignia by its "thrusting" and successful Dutch counterpart. "It would have been very difficult for a Labour government to sell such a deal to the country," he suggested.

Mr Alexander said: "There were a range of issues on which this deal foundered including regulatory issues and industrial relations issues." He added that the issue of valuation of the two businesses had also been a key consideration.

The minister also appeared to criticise Consignia for taking its eye of the ball by pursuing previous overseas acquisitions, such as the £300m purchase of German Parcel, whilst its costs were running out of control in the UK.

The select committee is conducting an inquiry into the postal regulator Postcomm's plans for opening up the market by abolishing the Royal Mail's letter monopoly.

This has led to fears being expressed for the future of the universal service obligation, which guarantees deliveries to any address for a single price.

Mr Alexander defended the Government's decision to make Postcomm an independent body. However, the minister made it clear that at a meeting last week with the PostComm chairman, Graham Corbett, he had stressed that the regulator's primary objective was to ensure that Consignia could continue to provide a universal service.

Postcomm is due to unveil its final plans for liberalising the market and is widely expected to water down its initial proposals, published earlier this year. These would have resulted in 30 per cent of the Royal Mail's monopoly being opened up immediately and the entire market being liberalised from 2006.

The consumer watchdog Postwatch yesterday published an analysis which put the value to Consignia of the universal service obligation at up to £480m. The research, carried out by London Economics, calculated that the benefits of providing universal service were six times greater than the cost.