Financial Times FT.com

Deutsche Bahn buys Arriva for £1.5bn

By John O’Doherty

Published: April 22 2010 08:58 | Last updated: April 22 2010 08:58

“We are placing our hopes in Sunderland,” declared Deutsche Bahn’s chief executive Rüdiger Grube on Thursday, after the German state-owned transport group sealed its takeover bid for Tyne-and-Wear-based Arriva.

The 775p per share cash offer, approved by the supervisory board of Deutsche Bahn on Wednesday evening and unanimously recommended by Arriva, values the group at about £1.5bn and comes as local European transport markets prepare for greater deregulation.

“Arriva’s activities will strengthen Deutsche Bahn’s strategic positioning in Europe, principally through Arriva’s successful targeting of Europe’s increasingly liberalised and fast-growing transport markets, which are of strategic interest to Deutsche Bahn,” Mr Grube said.

“Arriva will give Deutsche Bahn the platform to expand in Europe and enhance its position as one of Europe’s leading passenger transport groups. It is only the beginning of market liberalisation and consolidation. At the same time local transport markets across Europe will continue to open up. We have the change to either enter these European markets or simply lie back and begin to shrink.”

Mr Grube said the Arriva brand would function as the international business arm for Deutsche Bahn.

“Outside of Germany we intend to keep the brand Arriva for our regional passenger transport activities in Europe,” he said.

Deutsche Bahn is 100 per cent owned by the German state, and has 255,000 employees in 130 countries, with 60,000 employees outside Germany. In 2009, the group had revenues of €29.3bn.

“The scale of our achievement is highlighted by the level of new contracts in 2009 and the first part of 2010 [that Arriva has won],” said David Martin, chief executive of Arriva.

“Over that period we have added more than £3bn worth of long-term contracts across mainland Europe. Even though we are one of the leading private operators, we still have only a tiny proportion of the market, and therefore the potential for growth is significant. Deutsche Bahn also sees this opportunity and the potential to build a strong international business.”

While the liberalisation of European transport markets has created an environment conducive to mergers in the transport sector, European regulators are keen to ensure no single transport market becomes uncompetitive.

“Regarding the portfolio which Arriva today has, there is no overlapping in Europe with the exception of Germany,” said Mr Grube.

“Today in Germany, Arriva’s revenue represents roughly £417m, and they have train and bus activities in the relation of 80 to 20 per cent. We talked already to the European Commission’s anti-trust agency, and they gave a signal that we must sell the train activities of Arriva.”

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