Red Star to go to managers

British Rail has confirmed plans to sell its Red Star parcels business to the management, marking the largest disposal so far under rail privatisation.

BR has been attempting to spin off loss-making Red Star for more than two years, and the sale is due to be completed in September after further rationalisation. Another 200 jobs are expected to go from the 800-strong operation, but BR has promised there will be no compulsory redundancies. Red Star, which two years ago employed more than 1,000, has already had substantial reorganisation.

BR was not disclosing the sale price, but it is understood to be far below the pounds 20-pounds 30m originally sought. BZW and TSB are providing the funds for the deal, which includes capital to invest in the business.The purchasers are four regional managers, led by John Holmes, and a fifth member who is joining from a firm of accountants to become finance director.

The latest BR report does not break down Red Star's profits. But in the year to end-March 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.

The parcel business is fiercely competitive and the new company's strategy will be to forego volume for premium work. Red Star, which has 200 retail parcel points, will be structured into a core business with the delivery and collection operation franchised.

The sale brings to 12 the number of subsidiaries sold by the British Rail Vendor Unit. Sixty businesses are being disposed, about 20 this year.

Two years ago the Government withdrew Red Star from the market because of lack of interest, and a reorganisation began. In February this year 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 meet the original timescale, negotiations with other bidders were re-opened.