GM unit buys Arriva car hire in pounds 513m deal

ARRIVA, the bus and car group, finally completed the sale of its vehicle hire business yesterday for a higher-than-expected price of pounds 513m. The company said it may used the proceeds to bid for UK rail franchises.

The car hire division has been sold to General Motors Acceptance Corporation, a wholly owned subsidiary of the US car giant. Stripping out borrowings, the final cash price payable to Arriva will be pounds 226m, compared with analysts' expectations of about pounds 185m.

The car hire business was first put up for sale almost a year ago, but was withdrawn from the market in December after offers failed to match Arriva's hopes. It was put up for sale again in March after Bob Davies joined as chief executive.

Mr Davies said the pounds 226m proceeds would be used to develop Arriva as a passenger services company. So far Arriva's interests in this area are almost exclusively in buses, with a small rail operation in Holland. However, Mr Davies hinted that he would like to bid for some of the UK rail franchises.

He also refused to rule out a sale of the original car dealerships that used to be the core operations of the company when it was called T Cowie Group. These now account for just 13 per cent of profits, but at a far lower margin than the bus operations. However, Mr Davies said the car business was "a good, stable and profitable" business.

The move by General Motors to buy Arriva's car hire business represents the first major move by the American group into the British car hire market. The business will be tied in with GM's Vauxhall Finance division, which provides retail finance to Vauxhall dealers.

The Arriva vehicle hire subsidiary recorded profits of pounds 25m on sales of pounds 278m last year. As of 31 December last year it controlled a fleet of 52,000 cars and commercial vehicles.

The operation has been hit by falling prices in the second-hand car market in the past two years, which forced Arriva to give discounts on its rentals.

Arriva is one of Europe's top five bus operators, and the company is looking to buy more businesses on the Continent. In the last six months it bought businesses in Denmark and the Netherlands, and now it controls around one-fifth of the bus service market in those countries.

General Motors said all the jobs of the 480 employees included in the deal would be protected. Arriva shares closed 4p higher at 406p.