Deutsche Bahn snaps up Arriva for £1.5bn

Arriva's board is unanimously recommending a £1.5bn merger proposal from Germany's Deutsche Bahn.

The deal offers the British transport group's investors 775p in cash for each of their shares, and also guarantees a final dividend of 18.8p per share.

Deutsche Bahn stressed yesterday that the tie-up is based on a growth strategy, rather than a cost-cutting plan. The retention of the Arriva brand, the British management team and the company's Sunderland headquarters are guaranteed, according to Rüdiger Grube, the Deutsche Bahn chief executive.

"We are placing our hope in Sunderland and in the current management team," Mr Grube said.

The key attraction for Deutsche Bahn is Arriva's footprint across 12 European countries, which gives the German group a leg-up to exploit the growing liberalisation of the continent's passenger transport industry.

"Liberalisation is starting now and consolidation will follow: of that there is no doubt," Mr Grube said. "We have a chance to participate in entering these markets or we can sit back and begin to sink."

The deal – which follows hot on the heels of an abortive approach to Arriva from French rival SNCF – is just the start of a period of consolidation, Mr Grube said. He is forecasting that within 10 years the European market will be dominated by five or six major players, including major state players such as SNCF and Trenitalia.

Deutsche Bahn is determined to be at the forefront of the growing industry. "We intend to be the drivers not the driven," Mr Grube said.

The merger will create a transport behemoth. Arriva is one of Europe's biggest transport operators, and one of few that are listed. State-owned Deutsche Bahn is already the industry leader, employing 255,000 people.

Competition authorities have specified that if the merger goes ahead, Arriva's rail contracts in Germany will have to be sold. No other divestments have yet been specified.

David Martin, the chief executive of Arriva, said the Deutsche Bahn deal is a vindication of the company's 10-year strategy to expand in Europe.

And with continuing liberalisation, the opportunities for the future are enormous.

"We still have only 1 per cent of the total market so the potential for growth is significant," Mr Martin said yesterday. "Deutsche Bahn recognises that opportunity."

Deutsche Bahn runs the CrossCountry and London Overground rail franchises in the UK.