THE IRISH saying tells us “never run after a bus or a man – there will always be another one”. It doesn’t ring true in this instance: as far as Deutsche Bahn (DB) is concerned, Arriva is one of a kind.
With the European public transport market set for massive liberalisation over the next decade, thanks to an EU directive, its German monopoly is under threat. Arriva’s pan-European reach, with a presence in 12 countries, would help soften the blow of losing business at home.
Although the UK and Northern Europe opened up their public transport markets some time ago, the likes of Spain, Italy and Germany have not yet followed. These countries are now keen to slash public spending in the wake of the downturn, meaning they are unlikely to drag their heels when it comes to bringing in the private sector.
DB gets over three quarters of its revenues from Germany, and is poorly placed to capitalise on liberalisation elsewhere in Europe. Conversely, Arriva already gets around a third of profits and revenues from outside the UK.
Some of its individual businesses are also attractive. Take Spain, where Arriva is the biggest private bus operator but has just five per cent of the market. When public transport does open up, it will have a foothold and a track record that will enable it to bid against the mom-and-pop outfits that have local monopolies.
The Germans are expected to table a bid in the 750p to 775p-a-share region, around 6.9x ebitda at the top end, and a premium to the 6.6x offer that Stagecoach made for National Express. But that deal was mooted in the depths of the recession; Arriva shareholders would be advised to hold out for more. A fairer price would be around 7.5x ebitda, or 841p. There’s a reason that DB doesn’t want to wait for the next bus.