Arriva agrees £1.6bn takeover by Deutsche Bahn

Bus and rail firm Arriva today agreed a £1.59 billion takeover by German operator Deutsche Bahn to create a new European transport giant.

The move combines the UK's second biggest bus firm and the operator of Welsh and CrossCountry rail services with a business which carries five million train passengers a day in Germany.

Deutsche Bahn already has a presence in the UK - running services such as the Chiltern Railways route between London and Birmingham Snow Hill - and owns the company which runs the Royal Train.

But the group is looking for increased scale through the deal to take advantage of liberalised European transport markets.

Deutsche Bahn was founded in 1994 as a successor to the German national railway. It is still 100% state-owned but run for profit by its management and operates in more than 130 countries.

The group operates 34,000 kilometres of rail network in Germany but also wants to build on the platform of Arriva's international arm, which currently operates in 11 mainland European countries.

The combined business would carry around 10 million passengers a day - making it the largest carrier in Europe. The two businesses generated combined revenues of more than £28 billion during 2009, with 29.3 billion euros (£25.4 billion) from Deutsche Bahn and £3.1 billion from Arriva.

Deutsche Bahn chief executive Rudiger Grube said that the Arriva brand was "very, very valuable" and would be kept outside Germany. The company will also maintain Arriva's current headquarters in Sunderland.

Mr Grube added that job losses were unlikely as a result of the move. He said: "This is a merger for growth, sustainability and profitability so I hope we will create workforce rather than reduce workforce."

The company is confident of getting the deal approved by European competition authorities, although some of Arriva's German business will have to be sold.

The enlarged group will generate revenues through fresh contract wins although more acquisitions are part of the growth strategy, Arriva chairman Richard Broadbent added.

Deutsche Bahn's offer, which must be approved by Arriva's shareholders, comes after interest in the group from other European transport operators this year.

The firm said in late January that it was considering a potential tie-up with "all or part" of Keolis, which is 44.5 per cent owned by French national operator SNCF. The discussions ended in March before Deutsche Bahn entered the picture.

The Arriva chairman added: "Deutsche Bahn recognises the opportunity there is in Europe and wants to build on our existing presence and skills to further develop these markets.

"This offer fully reflects the value of the business we have built and gives shareholders the opportunity to realise that value today."