Deutsche Bahn AG, Germany’s state-owned railway, reached an agreement to buy UK transport operator Arriva PLC for about £1.6 billion (US$2.5 billion).
Arriva shareholders will receive £7.75 in cash for each Arriva share they hold, the two companies said in a joint statement yesterday.
Deutsche Bahn CEO Ruediger Grube wants to challenge French rival SNCF for primacy in the liberalizing European railway market. Sunderland, England-based Arriva, which ended merger talks with SNCF last month, is the biggest player in the region that’s not state-owned.
“It gives Deutsche Bahn a bigger foothold in UK rail and Arriva is also big in buses and have lots of businesses overseas,” said Christian Wolmar, author of Broken Rails, a history of Britain’s railways.
Arriva rose £0.035, or 0.5 percent, to £7.65 in London trading on Wednesday, valuing the company at £1.53 billion. The stock has gained 32 percent since March 17, when the UK company said it had received a takeover approach from an unidentified bidder.
Deutsche Bahn, which said on March 18 that it had approached Arriva, owns Britain’s biggest rail-freight company, together with Chiltern Trains, which provides passenger services from London to Birmingham.
Arriva, which employs more than 42,000 people, gets 52 percent of its revenue from UK operations, which include London buses, Welsh trains and the CrossCountry rail franchise that operates the long-distance route from Cornwall to Scotland.
Deutsche Bahn is targeting new markets after net income fell 37 percent to 830 million euros (US$1.11 billion) last year following a 12 percent drop in sales. Passenger traffic slipped 1 percent last year compared with a year earlier and freight slumped 12 percent, its annual report showed.
Deutsche Bahn is being advised by Lazard Ltd, while Arriva’s advisers are Rothschild and Deutsche Bank AG.
Citi analyst Roger Elliott played down the likelihood of a wave of consolidation, saying that Deutsche Bahn was in a unique position.
“We see echoes of the pre-IPO acquisition spree of Deutsche Post in the late 1990s, similarly sanctioned by the sole state shareholder, to diversify away from a narrow core business increasingly exposed to competition,” he said in a note.
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