Royal Mail may link up with giant US groups

Royal Mail is understood to be in talks with two of the world's biggest postal groups over the creation of a European parcels giant that would transform the fortunes of the state-owned organisation.

Royal Mail is in advanced negotiations with Fedex Corporation and UPS, the two giant US operators, to set up a ground-breaking strategic alliance in Europe.

Allan Leighton, Royal Mail's chairman, is said to be deciding which of the two companies to team up with Royal Mail's General Logistics Systems (GLS), which runs a pan-European parcels business and is the company's most profitable operation.

It generated sales of £1bn last year and profits of £100m, and it is thought that this figure could double over the next two years.

A tie-up with a US partner would mean that GLS could move into postal markets in Germany and France and eventually look to break into Asia and India.

"They have built up an efficient network which is widely admired, so this would not come as a big surprise," one observer said.

A spokesman for Royal Mail said the company would not comment on the speculation. No one from Fedex or UPS was available for comment.

News of the talks comes just days after Royal Mail secured a government-backed package worth £3bn to modernise the network and tackle its huge pension fund deficit.

Mr Leighton stressed last week that the £3bn was not a "bail out" or state aid, but freed up millions of pounds of the Royal Mail's reserves as well.

A deal with Fedex or UPS could transform the financial prospects of Royal Mail. It would give it greater exposure to the packet business, which is booming thanks to online retailers.

Royal Mail increased its profits by 17.5 per cent last year, triggering bonus payments of more than £400 for postal workers and sub-postmasters across the country.