Monday, March 24, 2014

Amazon buys stake in Yodel from Barclay brothers

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Amazon has struck a deal with the Barclay brothers, owners of the Ritz hotel and Telegraph newspaper titles, to acquire a stake in Yodel, which was recently voted Britain's worst parcel delivery service for the second year running.

More than 10% of Amazon's $75bn (£45.5bn) global revenues are thought to be made up of sales to customers in the UK, although the US group controversially books these transactions through its Luxembourg-based office.

The decision to strike a deal with Yodel appears to signal that Amazon is prepared to support Sir David and Sir Frederick Barclay's loss-making business in the crowded parcel delivery market.

Yodel accounts show Amazon has been given an option to acquire 4.2% of Yodel in a deal which values the business at £207m. The option to acquire the stake for £8.7m remains open until 2022.

Amazon and Yodel declined to comment on closer commercial ties between the two firms.

Yodel, based in Hatfield, Hertfordshire, was born out of the delivery business of catalogue retailer Littlewoods, which is also part of the Barclay brothers' business empire. Following a series of acquisitions, it now ships more than 135m parcels a year, making it the second largest delivery service after recently-privatised Royal Mail.

Yodel has more than 5,000 vans and employed more than 16,000 people delivering 14m parcels during last year's Christmas rush. Its top clients include some of Britain's largest and fastest-expanding online retailers, such Tesco Direct, Boots and Argos. But the business has lost big clients in recent years, including John Lewis, Matalan and Mothercare.

Yodel has attracted criticism from some quarters for the quality of its service. In a poll of 9,000 shoppers by in January, 58% of customers who had goods delivered by Yodel rated the experience "bad". Only 22% reported a good experience.

Responding, Yodel said it had serious concerns about the validity of the poll, noting it was "open to influence by parties with a vested interest in affecting the outcome". The delivery group's own research, which Yodel said was independent and based on verified feedback, suggested the company was, in fact, ahead of competitors on customer satisfaction.

Yodel's worst Christmas, in 2011, saw the business caught out by the leap in seasonal demand. At one stage, it was failing to deliver about 15,000 parcels a day. The episode led to an online petition calling on Amazon to stop using Yodel, which was backed by thousands of disgruntled shoppers.

Since then, however, the parcel business has brought in new management under executive chairman Dick Stead, and insists it is has transformed the quality of services it offers.

Latest accounts show Yodel Distribution Holdings sales for the year to 30 June 2013 fell 19% to £439m as the business exited a lot of unprofitable business. Pretax losses were almost unchanged at £112m.

The company directors said: "The group continues to operate in a rapidly changing marketplace in which the shift in retailing channel to online shopping presents a significant opportunity, but where overcapacity ... has created a high degree of competition."

One unexplained aspect of the option granted to Amazon over Yodel shares is the implied valuation of £207m. The warrants granting the option were issued just days before a corporate reshuffle saw the Yodel business transferred between Barclay-controlled holding companies at a value of £500m. Asked why Amazon had been granted an option at such a deep discount to Yodel's fair value, a spokesman for the brothers declined to comment.

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