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Rail deal

April 22, 2010

After weeks of negotiations, German rail company Deutsche Bahn is to buy Britain's Arriva to improve its "strategic positioning" in Europe's liberalized transport markets. Managers see little room for growth in Germany.

An Arriva bus arrives at a bus stop.
Arriva operates rail and bus services in 12 countriesImage: picture alliance/dpa

German state rail company Deutsche Bahn announced Thursday it has agreed to buy British train and bus operator Arriva for 1.8 billion euros (US$2.4 billion). Arriva operates in 12 European countries, making it a key acquisition in Deutsche Bahn's strategic push to take advantage of Europe's increasingly open rail markets.

Deutsche Bahn's chief executive Rudiger Grube said in a statement that the deal would give the company a platform to further expand its operations beyond German borders.

"Arriva's activities will strengthen Deutsche Bahn's strategic positioning in Europe, principally through Arriva's successful targeting of Europe's increasingly liberalized and fast growing transport markets, which are of strategic interest to Deutsche Bahn," he said.

Private sector transport operators in Germany have begun to erode Deutsche Bahn's home market, prompting the company to broaden its horizons.

The German company faced competition from French state rail company SNCF in bidding for Arriva. Deutsche Bahn already owns British passenger operator Chiltern Railways and freight operator EWS, and recently struck multi-billion-euro development deals in Qatar and the United Arab Emirates.

Deutsche Bahn CEO Rudiger Grube.
Deutsche Bahn CEO Rudiger Grube says the deal is a strategic moveImage: picture-alliance/ dpa

Mixed response

Deutsche Bahn's Grube said the acquisition would require his group to sell Arriva's German rail activities to meet EU anti-trust rules.

However, some critics still see the deal as an instance in which a state company is forcing a private one out of the market.

Others fear the bureaucracy-heavy Deutsche Bahn is overextending its resources. The company has been mired in a controversial privatization process since 1993, and was fined in 2009 over a scandal involving spying on employee email accounts, hard drives and health records.

Media reports have suggested the total value of the deal – which is to be paid in cash – is closer to 2.7 billion euros ($3.6 billion) once Arriva's debt is taken into account. Arriva chairman Richard Broadbent said the Deutsche Bahn's offer "fully reflects" the value of the British group.

Arriva chief executive David Martin told reporters he would advise shareholders to accept Deutsche Bahn's offer of 775 pence per share, which is equal to 16 times estimated 2010 earnings. He added that the sale could be finalized by August.

Editor: Sam Edmonds