Time right for Anglo-German tie-up

AS the cliché goes, German trains always arrive on time. For Deutsche Bahn (DB), this deal has pulled into the platform at exactly the right moment.

Transport markets across Europe are set for a massive period of liberalisation over the next ten years, after the EU issued a series of directives that will force member states to break up bus and train monopolies. Countries like Italy and Spain will be only too happy to comply, as they seek to reduce government expenditure through privatisation. Currently, DB is poorly placed to capitalise on this, sourcing just 23 per cent of its European revenues outside of home market Germany, where its own stranglehold is under threat from the new rules.

The best opportunities for a combined DB/Arriva would be in Western European nations like Italy and Germany, where heavily regulated markets currently benefit state-run companies and mom-and-pop bus and coach operators. In Italy, Arriva is the biggest private bus operator but has just five per cent of the market. And it describes Germany as an “emerging market” in its annual report, a term that can’t have been used in relation to the European strongman for some decades.

Traders are talking of a 700p-a-share offer, which would value the company at 7.2 times ebitda, a premium to the 6.6 times offer Stagecoach made for National Express. Analysts at RBS are sceptical that DB can afford Arriva’s enterprise value of £2.1bn, due to its €15.3bn debt pile that is 4.1 times higher than ebitda. But if it can find the funds, the moment for expansion is here.