POL00028611
POL00028611
TO:
FROM: John Roberts
_ Mike Kinski
John Lloyd
Miles Templeman
Rosemary Thome
DATE: 24 May 1999
HORIZON
1,
PS
Tattach two letters which were exchanged after last night’s Board Meeting.
The first, from Neville Bain, reflects our discussion and sets out not only the
‘views of the Board but the conditions on which we were prepared to sign the
Heads of Agreement. In writing them, we set a bottom line for our negotiations
that the second and third starred items were essential, whereas the first and
fourth items could, if necessary, be given away.
"In the event, as you will see from the second letter, we were able to achieve the
first three items with some warm words on the fourth item about VAT. On the
basis of that, we faxed a signed copy of the Heads of Agreement to ICL at
around 2am this morning.
As a result of last night’s discussions, the Chairman has decided that there is no
need for a Board Meeting today but he is available if any Non-Executive wants
to phone him (or me) to add any further details to this note. We will be .
producing a formal record of last night’s meeting, which we will circulate to
you and then formally approve at our next regular meeting on 8.June.
Thank you all for your help last night.
The Minutes of last night’s meeting will be faxed out to you later on this
afternoon. .
AIR240S991
POL00028611
a
POL00028611
The Post Office
148, Old Street,
LONDON
EC1V 9HQ
23 May 1999 -
Newt deeper, '2 Here
In the light of your letter today expressing the Government's wish for the Post Office to sign
the Heads of Agreement with ICL, The Post Office Board met tonight. With the exception of
one non-executive, all members were involved. .
We considered your proposal and the unanimous view of the Board was as follows: ~
~ based on the information currently available to us, and bearing in mind our fiduciary
responsibilities, we believe that option B3 is likely to lead to a deterioration in the financial
position of the Post Office, and is not the best use of shareholder funds
- however, you have made it clear that you and colleagues believe it is the best way
forward, and of course we do have the opportunity of the next three nionths to fully
understand the proposal and see if it can be made workable
- in the light of this we would be prepared to sign the Heads of Agreement tonight but
on the following conditions: ,
*while we will work positively to create a success of the option, if thie
three months show this is not possible, or the performance of ICL causes us to doubt further
their ability to complete their part of the deal, then we expect the £150m cancellation payment
to be treated’ in the same way as the £480m. 7 .
*in the case of both figures they will lead to appropriate profit target
and EFL reductions and that you will ensure payment is made in a way that POCL remains
solvent and able to pay its creditors as they fall due.
* that none of the figures mentioned in your letter will in any way affect
the proposals, including funding for acquisitions so far put forward in the Government
"approach to the White Paper. -
* that because POCL is largely exempt from VAT, you will ensure that
the VAT effects on the payments to ICL are neutral to the Post Office °
Finally, my Board are deeply concerned about the whole way in which this issue has been
handled and about the relationship between yourself as our sponsoring Minister and ourselves, °
I would like an urgent meeting between myself, the non-executives and yourself as soon as
possible,
POL00028611
POL00028611
CONFIDENTIAL- COMMERCIAL ~
I
Dr Neville Bain
Post Office Chairman
The Post Office
148 Old Street
London - :
ECIV 9HQ
23 May 1999
=) Dow ‘Ya Ra nN
‘HORIZON
Thavo considered your response to my letter of today which indicated that you would be
prepared to sign the Heads of Agreement tonight on the basis of a number of conditions,
Taking these in tum: - .
- Government will accept responsibility for the £150 million termination fee except to the
extent that we judge the Post Office to be responsible for failure to complete the Codified
Agreement: , :
We will amend the EFL to reflect the drawdown of the £480 million and take it fully into
account in setting profit targets. © ,
I confirm that nothing in my proposal earlier today will affect my approach on the White
Paper.
Because any alteration to the VAT regime for the Post Office raises wider implications, I am
afraid that we cannot solve this issue this evening. I am however sympathetic to your
concems, and will be prepared to discuss them in the wider context of the White Paper on ;
the future of the Post Office.
Yous Kitna
STEPHEN BYERS a
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