Byers to offer Railtrack payout

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Indy Politics

Stephen Byers, the Transport Secretary, is expected to yield to intense pressure from the City this week and offer Railtrack's disgruntled shareholders a £1.25bn payoff.

The compensation will almost certainly remove the threat of legal action hanging over Mr Byers's head, but will raise fresh questions over his handling of the Railtrack affair. After five months of refusing to meet the demands of investors who stood to lose millions when Railtrack was plunged into administration, he will now make them an offer through the Government's not-for-profit company which is to take over the beleaguered firm.

Critics will want to know why Mr Byers has made such a dramatic U-turn after maintaining that the Government would not bail out shareholders. Whitehall sources said last night that No 10 and the Treasury played a behind-the-scenes role in the offer.

Earlier this month a group of banks wrote an open letter to the Government saying they had lost faith in public projects as a result of the Railtrack débâcle. With Tony Blair increasingly relying on private money to fund public services, the letter forced a rattled Prime Minister to defend the Government's record.

Details of the offer to Railtrack's shareholders could emerge as early as tomorrow and, if accepted, will save taxpayers millions of pounds. When Mr Byers pulled the plug on Railtrack, he said the firm would be in administration for from three to six months. However, the administrator, Ernst & Young, was forced to admit last week that the process could drag on to next year. With the cost of keeping Railtrack in administration put at £1m a day, a swift resolution will be welcomed by the Chancellor.

The offer to shareholders is expected to be made by Ian McAllister, chairman of the not-for-profit company, sometimes known as the Company Limited by Guarantee. It will be 250p a share – just 30p a share less than the value of Railtrack's stock before it was placed into administration.

Shareholders have maintained that they will only accept 280p, but City insiders contacted by The Independent on Sunday said they would be willing to accept the offer.

"With legal action possibly dragging on for years and costing millions in fees, we would be mad not to," said one.

The offer, which would value Railtrack at £1.25bn, is more than the value of its assets, thought to be £750m. Shareholders were sharpening their knives for litigation against Mr Byers, whose decision is also thought to be partly due to a lack of interest from private firms in taking over Railtrack's operation.

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