Managers poised to buy Red Star

RUSSELL HOTTEN

A management buy-out of British Rail's loss-making Red Star Parcels business is close to being agreed, ending a difficult episode in the rail privatisation programme.

A deal, which could be announced today, comes after the management team were initially ruled out of negotiations in favour of other bidders.

British Rail's Vendor Unit and the management team's advisers, including BZW, were believed to be putting the finishing touches to a deal last night. One of the negotiators said: "The deal is not signed," but refused to discuss it further.

Red Star is among 60 British Rail subsidiaries being sold, but has so far proved the most difficult to spin off because of its poor financial state and strong competition from rivals. Two years ago the Government withdrew Red Star from the market because the lack of interest meant no acceptable offer was made.

A restructuring plan was carried out to cut costs and reduce the annual losses of pounds 9m on turnover of only pounds 43m, and the business was put back up for sale last year.

In February a management buy-out was ruled out as BR's Vendor Unit entered negotiations with the privately-owned British Bus, one of the UK's largest operators.

When British Bus said it could not complete the purchase within the original timescale, negotiations with other possible bidders were re-opened. Two of those on the shortlist were understood to be Security Despatch, a London despatch rider service, and London Caledonian, a private firm.

The management buy-out team is thought to comprise the three Red Star regional managers, including John Holmes, as well as finance and marketing directors. Other executives are also involved in the team.

It is unclear how much Red Star may sell for, though it would be the most important disposal yet by the Vendor Unit.

The latest BR report does not break down Red Star's profits. But in the year to end-March 1995 BR's parcels division, which includes Rail Express Systems as well as Red Star, made operating losses of pounds 14.1m on gross income of pounds 78.4m.

Red Star is the only UK parcels carrier to use the British Rail network and has more than 200 outlets, employing about 1,000 staff. Red Star's rivals fear the company might be sold at a knock-down price to get a deal out of the way.

Negotiations with the management team have been delayed due to the complexity of the deal.

Red Star has 150 operational leases on property that had to be agreed between Railtrack, which owns track and signalling, and the train operating companies.

Of the 60 BR subsidiaries on the market, about 20 sales are planned by the end of 1995. These have included the seven factories of British Rail Maintenance Limited, which has a total turnover of pounds 180m from overhauling locomotives and coaches.

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