Railtrack agrees £1.3bn offer but shareholders vow to fight on

Railtrack shareholders vowed to fight on last night after the company announced that it had dropped the threat of legal action against the Government in return for a compensation deal worth 245p to 255p a share, or about £1.3bn.

Geoffrey Howe, Railtrack's chairman, maintained that the offer was the best that it could have achieved for investors under the circumstances. "Last October, when Railtrack was placed in administration, most shareholders thought they would be lucky to get anything. The result we have got is a jolly sight more than anybody thought we would get," he said.

But Andrew Chalken, a Railtrack employee and chairman of the Railtrack Private Shareholders Action Group, said he was "extremely disappointed" that the company's board had recommended acceptance of a "totally inadequate" offer. "We have urged it to fight on for its shareholders but it has apparently flunked that challenge. Shareholders will fight on," he added.

The offer will be put to Railtrack shareholders at an extraordinary meeting next month at Alexandra Palace in north London. If shareholders vote to accept it, then Railtrack will place itself in voluntary liquidation – a move which renders the payments received for its assets from the Government tax free.

Railtrack then plans to distribute the compensation in the form of a repayment of capital which means shareholders will not have to pay tax on it either. The first instalment, expected to be 160p to 180p, is likely to be paid next January with the balance paid out in two further tranches in the following few months.

The compensation is made up of £500m for the Railtrack network, £375m for its interest in the Channel Tunnel Rail Link (CTRL), £350m of cash which has been frozen in the group's bank accounts since it went into administration, and property assets worth a further £87m.

Railtrack shares, which were re-listed yesterday following their suspension in October, opened at 280p and closed at 224p.

The overwhelming majority of Railtrack's big institutional investors, who between them own 77 per cent of the company, are expected to approve the compensation offer. But Mr Chalken said its 250,000 private investors, who include about 10,000 Railtrack employees, deserved better and urged more shareholders to contribute to a fighting fund which has so far raised £420,000 to mount a legal challenge. Mr Howe, himself a City lawyer, said: "This is not about fairness. This is about reality. I wish more was on the table but it isn't." He said that the chances of a legal action succeeding were far from certain and even if the company had won in court, its legal advice was that compensation was unlikely to exceed 280p.

Although the compensation payment to shareholders will amount to £1.3bn, the cost of the deal to the Government is greater because it has waived its right to take a £100m share of the proceeds from the sale of Railtrack's stake in the CTRL.

Railtrack's own costs in fighting the Government and funding itself while the company has been in administration amount to about £41m.