By Matt Scuffham
LONDON, March 18 (Reuters) - Deutsche Bahn has confirmed it is in talks with Arriva over a possible bid for the UK-based train and bus operator, as it seeks to expand in Europe's newly deregulated international rail markets.
The German state railway firm, which already operates the Chiltern Railways route between London and Birmingham, said on Thursday it had made an approach to Arriva regarding a possible cash offer and said discussions were continuing.
Market speculation on Wednesday had linked the German group with a 700 pence-per-share bid, valuing the business at just under 1.4 billion pounds ($2.1 billion) before debt. Arriva had net debt of 852 million pounds at the end of 2009.
Shares in Arriva were up 4.4 percent at 707 pence at 1359 GMT, extending Wednesday's gain of 17 percent.
The shares are up 51 percent since Jan. 27, the day before news broke that it was in talks with French state railway group SNCF about an equity tie-up with European train amd tram operator Keolis, an SNCF affiliate.
Two weeks ago Arriva announced that those talks had ended, with no agreement reached.
EUROPEAN EXPANSION
Sunderland, northeast England-based Arriva runs bus and train services in 12 European countries, including Germany, making it one of the continent's few public-transport operators with a wide international footprint.
JP Morgan analyst Edward Stanford said a takeover by Deutsche Bahn would be a logical strategic move given its stated interest in building a presence outside the German market where it is restricted from growing further by the cartel authorities.
'Arriva is in our view a unique asset for potential bidders interested in gaining scale in the deregulating European public transport market. It has a strong presence in a number of major European markets,' said JP Morgan analyst Edward Stanford.
Shore Capital analyst Karl Burns agreed that Deutsche Bahn's would have been attracted by the potential capture of Arriva's European operations rather than those in the UK.
'The most likely motive of Deutsche Bahn would be to gain a footprint within the liberalising European transport market, where EU directives require public transport liberalisation over the next 10 years,' he said.
Burns noted Deutsche Bahn has a limited presence in Europe with just 23 percent of revenue coming from outside Germany.
In Britain, it operates the CrossCountry franchise, running between Aberdeen in Scotland and Penzance in southwest England.
However, Arriva's own operations in Germany could attract the attention of competition authorities in the event of a bid.
Arriva has a rail and bus business in Germany which had sales of just over 400 million pounds last year. It is the third-biggest rail operator in Germany behind Deutsche Bahn and Veolia.
'If Deutsche Bahn was to buy Arriva then divestments would probably be required in German rail,' analysts at UBS said in a research note.
JP Morgan's Stanford considered a possible take-out price would range between 700 pence a share at the low end and 840 pence at the upper end and said he would not rule out a counter offer in view of Arriva's continental European operations.
UBS put a value of 700 pence on the business, based on recent deals in the sector at 8 times historical EBITDA.
(Additional reporting by Quentin Webb; Editing by Victoria Bryan and Greg Mahlich)
($1=.6545 pounds) Keywords: ARRIVA DEUTSCHEBAHN/ (matthew.scuffham@reuters.com; +44 20 7542 6734) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, March 18 (Reuters) - Deutsche Bahn has confirmed it is in talks with Arriva over a possible bid for the UK-based train and bus operator, as it seeks to expand in Europe's newly deregulated international rail markets.
The German state railway firm, which already operates the Chiltern Railways route between London and Birmingham, said on Thursday it had made an approach to Arriva regarding a possible cash offer and said discussions were continuing.
Market speculation on Wednesday had linked the German group with a 700 pence-per-share bid, valuing the business at just under 1.4 billion pounds ($2.1 billion) before debt. Arriva had net debt of 852 million pounds at the end of 2009.
Shares in Arriva were up 4.4 percent at 707 pence at 1359 GMT, extending Wednesday's gain of 17 percent.
The shares are up 51 percent since Jan. 27, the day before news broke that it was in talks with French state railway group SNCF about an equity tie-up with European train amd tram operator Keolis, an SNCF affiliate.
Two weeks ago Arriva announced that those talks had ended, with no agreement reached.
EUROPEAN EXPANSION
Sunderland, northeast England-based Arriva runs bus and train services in 12 European countries, including Germany, making it one of the continent's few public-transport operators with a wide international footprint.
JP Morgan analyst Edward Stanford said a takeover by Deutsche Bahn would be a logical strategic move given its stated interest in building a presence outside the German market where it is restricted from growing further by the cartel authorities.
'Arriva is in our view a unique asset for potential bidders interested in gaining scale in the deregulating European public transport market. It has a strong presence in a number of major European markets,' said JP Morgan analyst Edward Stanford.
Shore Capital analyst Karl Burns agreed that Deutsche Bahn's would have been attracted by the potential capture of Arriva's European operations rather than those in the UK.
'The most likely motive of Deutsche Bahn would be to gain a footprint within the liberalising European transport market, where EU directives require public transport liberalisation over the next 10 years,' he said.
Burns noted Deutsche Bahn has a limited presence in Europe with just 23 percent of revenue coming from outside Germany.
In Britain, it operates the CrossCountry franchise, running between Aberdeen in Scotland and Penzance in southwest England.
However, Arriva's own operations in Germany could attract the attention of competition authorities in the event of a bid.
Arriva has a rail and bus business in Germany which had sales of just over 400 million pounds last year. It is the third-biggest rail operator in Germany behind Deutsche Bahn and Veolia.
'If Deutsche Bahn was to buy Arriva then divestments would probably be required in German rail,' analysts at UBS said in a research note.
JP Morgan's Stanford considered a possible take-out price would range between 700 pence a share at the low end and 840 pence at the upper end and said he would not rule out a counter offer in view of Arriva's continental European operations.
UBS put a value of 700 pence on the business, based on recent deals in the sector at 8 times historical EBITDA.
(Additional reporting by Quentin Webb; Editing by Victoria Bryan and Greg Mahlich)
($1=.6545 pounds) Keywords: ARRIVA DEUTSCHEBAHN/ (matthew.scuffham@reuters.com; +44 20 7542 6734) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
