LONDON — According to a wire service, a government-backed company offered Monday to pay $710 million for Britain’s stricken rail network, in a deal that would compensate shareholders for some of the losses they suffered when the government took steps that forced the network out of business.
Network Rail said it made its offer in the hope of bypassing a time-consuming auction of Railtrack PLC to the highest bidder. As part of the acquisition, it would assume 6.5 billion pounds ($9.2 billion) in Railtrack debt, boosting the total value of the deal to at least 7 billion pounds ($9.9 billion).
While Network Rail insisted its goal was to create a safe and reliable rail system, opposition politicians derided the offer as an embarrassing about-face on one of the most contentious issues vexing the Labor Party government of Prime Minister Tony Blair.
The government had refused to compensate Railtrack shareholders after Transport Secretary Stephen Byers withdrew Railtrack’s subsidies in October. Critics said the government was panicked into arranging Monday’s offer after leading banks threatened to withhold funding for future projects unless it agreed to reimburse shareholders.
Network Rail is a private, nonprofit company set up specifically to bid for ownership of Railtrack. It said it would pay the 500 million pounds only if Railtrack emerged early from administration, or receivership. The payment would consist of a government grant of 300 million pounds ($325 million) and 200 million pounds ($285 million) in borrowed funds.
“I believe that this approach is the best way to ensure that Railtrack PLC does not remain in administration for a great many months to come,” said Network Rail chairman Ian McAllister. “The ‘early exit’ payment is the only realistic option for Railtrack Group PLC to realize value in the short-term.”
Anthony Smith, national director of the Rail Passengers Council, welcomed the proposal.
“It is good news for passengers because it ends the long term uncertainty about Railtrack’s position,” he said.
Network Rail plans to borrow up to 9 billion pounds ($12.8 billion) from commercial banks to finance the deal. Although the government hasn’t guaranteed these loans, Network Rail said the Strategic Rail Authority has offered standby loans to support its bid as a last resort.
A rival bidder, Swiftrail, has proposed collaborating with Network Rail to help finance the operating costs and huge investments that the government is seeking for the nation’s tattered rail system.
Swiftrail chairman David James said he envisioned his company’s participating as “a captive finance house” to help pay for more than 33 billion pounds ($47 billion) in necessary engineering upgrades to Britain’s railroads.
However, Swiftrail, owned by the German investment bank WestLB Panmure, hasn’t ruled out competing with Network Rail to acquire Railtrack.
“The situation is unresolved. We are at the present moment still regarding ourselves as potential bidders,” James said.
Railtrack was set up to maintain the nation’s train tracks when the state railway system was sold in the early 1990s. More than a dozen other private companies own and run the trains.
Critics accused Railtrack of failing to invest enough money in the system and blamed it for safety problems, including several deadly crashes.
Byers welcomed the Network Rail offer and said it would put the interests of the traveling public first. The new company would have members instead of shareholders and would pay no dividends.
“Unlike Railtrack, its operating surplus will be reinvested in the rail network,” he told the House of Commons. “Its core focus will be the maintenance and renewal of Britain’s railways … (and) not short term profit for shareholders.”
Network Rail said Railtrack could come out of administration by July if Railtrack’s shareholders accept its proposal. McAllister, Network Rail’s chairman, acknowledged that meeting this timetable would be “quite challenging.”
Network Rail’s offer was expected to provide Railtrack investors with about 2.50
pounds ($3.55) a share, compared to the 2.80 pounds ($3.98) each share was worth before the company was forced into administration. Railtrack shares once traded for as much as 17 pounds a share.