By Mark Kleinman, City Editor
Rival delivery companies including Royal Mail were approached about a pre-Christmas rescue of City Link, the parcel services provider which collapsed into administration this week.
Sky News has learnt that Royal Mail and DX Group held preliminary talks in recent weeks with KPMG, which was working for City Link's owner to identify possible buyers of the struggling company.
Royal Mail, which is 30%-owned by the taxpayer, is understood to have been interested in taking on some of City Link's large customer contracts, which include deliveries for high street retailers such as John Lewis and Mothercare.
DX is said by insiders to have held talks about a more comprehensive deal involving City Link's assets, and analysts said they now expected it to attempt to acquire parts of the company out of administration.
Other specialist restructuring firms were also approached about a takeover of City Link, but none of these resulted in concrete discussions about a deal prior to directors appointing EY as administrator after the close of trading on Christmas Eve.
The collapse has sparked controversy, with more than 2,700 jobs directly under threat and a further 1,000 said to be at risk owing to the number of self-employed contractors used by City Link.
The RMT trade union criticised Better Capital, the investment firm which owns City Link, for the timing of the administration, which Sky News revealed on Christmas Day.
But sources close to the situation pointed to an email sent by one RMT official to members on Christmas Eve which said - inaccurately - that the company had already called in administrators that morning.
"This led to increasing pressure on the business and given the level of rumour [there was a] risk of creditor action and thus the company [had to be placed] into administration to give it protection," said an insider.
RMT officials held talks with the administrators on Saturday about a possible rescue, while Vince Cable, the Business Secretary, has agreed to meet the union to discuss the situation in the new year.
A spokesperson for the RMT union said: "A meeting between City Link union RMT and administrators Ernst and Young today has exposed a truly horrific catalogue of mismanagement at the top of the company dating back to November which leaves more than 2,000 staff facing redundancy on new years eve with a skeleton staff kept on for a couple of weeks to wind down the operation."
City Link was acquired by Better Capital, an investment firm headed by Jon Moulton, a leading financier, last year.
Its previous owner, the pest control firm Rentokil, offloaded it for just £1, reflecting the parcel group's long history of losses.
People close to the situation said Better Capital's £40m investment in City Link had been followed by a series of efforts to make it commercially viable, and pointed out that the current shareholder would lose a "significant" sum of money as a result of its collapse.
The scale of possible job losses among City Link's 2,727 employees has not yet been identified, although EY said they were likely to be substantial, with the first round of redundancies expected within days.
A number of staff are being retained to help return parcels to customers and assist with winding down City Link's operations, the administrator said.
Despite the recent explosion in the growth of online shopping, the delivery sector is beset by excess capacity, with companies such as Amazon developing their own delivery services.
Last month, Better Capital wrote down the value of its £40m investment in City Link by 50% and said it was exploring "various options to maximise the value of the (holding)".
In the wake of a £14m loss for the 2013-14 financial year, City Link's owner added that the business had "progressively deviated from its monthly profit budget during its current year to 31 December driving the conclusion that its current structure is unsustainable in the long term".
Better Capital blamed the worsening outlook on "excess (and increasing) capacity in the sector, made worse by customers developing their own delivery capabilities".
The administrators said customers who had handed over parcels to City Link on Christmas Eve should go to a depot to retrieve them on or after December 29.
The company's online parcel tracking system and helpline telephone numbers are again open to enable fulfilment of existing orders.
Royal Mail declined to comment while DX was unavailable.
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