Prism founders net £34m in National Express takeover

A fresh fat-cat row broke out in the rail industry yesterday after it emerged that ten founding shareholders of Prism Rail, the owner of four train franchises including the London-Tilbury-Southend "misery line", will net a £34m profit following the sale of the business to National Express.

A fresh fat-cat row broke out in the rail industry yesterday after it emerged that ten founding shareholders of Prism Rail, the owner of four train franchises including the London-Tilbury-Southend "misery line", will net a £34m profit following the sale of the business to National Express.

The £166m purchase of Prism by National Express, which already owns five rail franchises, is the first consolidation among the train operating companies since privatisation four years ago. It will create a £1bn train business with 20 per cent of the rail market.

The ten Prism founders will receive £37m for their 22 per cent shareholding in the company. They paid a total of a little more than £3m for the shares. The biggest windfall will go to one of Prism's non-executive directors, Bob Howells, who owns 1.6m shares and will receive around £9m. Prism's chief executive, Giles Fearnley, and another non-executive director, Godfrey Burley, will each receive around £6m.

Jimmy Knapp, general secretary of the RMT rail union, said: "Here is yet another example of millionaires being created overnight on the back of the privatisation of the railways."

National Express is paying 615p a share for Prism in a mixture of cash and paper - a 23 per cent premium on the company's market valuation on Monday night. The offer is 0.375 National Express shares, 282.5p and a 40p special dividend for each Prism share.

The Shadow Strategic Rail Authority (SSRA) has already approved the deal in principle in return for National Express agreeing to invest a further £25m on its passenger franchises. This is in addition to the £20.5m that Prism had already agreed to spend on the LTS line in return for being allowed to hand back its two loss-making Welsh franchises, Wales and West and Cardiff Railways, three years early.

Phil White, chief executive of National Express, forecast that the number of train operators would fall to three or four and said he was keen to acquire more franchises. At present the 25 franchises are spread among 10 owners. "We want to be the consolidators rather than being on the receiving end of that process," he added.

However, it is thought that Sir Alastair Morton, the chairman of the SSRA, wants to see the number of train operators kept at a minimum of six to ensure there is adequate competition for franchises.

National Express' five existing franchises are Central Trains, Gatwick Express, Midland Mainline, Silverlink and ScotRail. The two Prism franchises it is keeping are West Anglia, which includes the Stansted Express service, and the LTS line, which has been renamed c2c, standing for commitment to customers.

Under the agreement already struck between Prism and the SSRA, it will hand back the two Welsh franchises and the Great Northern franchise in March 2001. The two franchises National Express is retaining made operating profits of £21m on turnover of £153m last year and are forecast to make profits of £26m on sales of £230m in 2002.

National Express also intends to bid for the Thameslink franchise, currently owned by franchise operator Go-Ahead, and Mr White said it would also be interested in buying a stake in the Heathrow Express from airports operator BAA.