Pay day for NZ investors as UK rail sale confirmed
2 December 2007
Pay day for New Zealand investors as billion dollar sale of UK rail giant is confirmed.
The European Commission has approved a deal, worth almost NZ $1 billion, that sees ownership of English, Welsh and Scottish Railways (EWS) pass to Deutsche Bahn, Germany’s state-owned railway network. Deutsche Bahn have agreed to pay £336 million for the British rail freight operator. Kiwi merchant bankers, David Richwhite and Sir Michael Fay, along with several other New Zealand co-investors, have a 16.6% stake in EWS. Fay and Richwhite partners hold nearly half (45%) of the New Zealand stake, alongside other Kiwi investors in the deal. Other significant shareholders are Canadian National Railway (31.6%), Berkshire Partners (16.8%) and Goldman Sachs (5.8%).
EWS, which runs the Queen’s Train, is also Britain’s biggest freight carrier, handling 70% of all the freight hauled in the United Kingdom. Having expanded its business by 60% since it was privatised in 1996, its annual turnover now exceeds NZ $1.5 billion. EWS operates a fleet of 500 locomotives and 14,000 wagons, with a workforce of 5000. Recently, EWS has moved into Europe. It has a growing rail business in France and is one of just three operators licensed to carry freight through the Channel Tunnel.
EWS is one of only a very few profitable rail operators in Europe. More than NZ $1.5 billion has been seeded back into the business in the form of capital re-investment since the business was privatised. Acknowledging the robust state of EWS, Deutsche Bahn boss Hartmut Mehdorn pointed up the sharp contrast with “the stagnant, loss-ridden rail freight transport markets in many parts of Europe”.
Fay Richwhite’s key stake in EWS dates back eleven years. “In 1996 the British Government was keen to sell British Rail’s freight companies as six separate businesses,” says David Richwhite. “But it was clear to us that if rail freight was to have a sound economic future in the UK, the best option was to put the bits together again to generate critical mass. So we purchased four of the six businesses on day one and one more 18 months later. That wasn’t an easy deal to structure. But it was worth the effort and EWS has gone from strength to strength in a European market that just gets more competitive every year.”
“We are confident that Deutsche Bahn will continue to grow the business, and now feels like the right time to exit. The sale produces an excellent return not just for us but for the New Zealand co-investors who’ve come along with us on a long, hard but ultimately profitable ride.”