FT.com / World - Germany agrees partial sale of Deutsche Bahn

FT.com / World - Germany agrees partial sale of Deutsche Bahn

Germany agrees partial sale of Deutsche Bahn
By Hugh Williamson

Published: April 15 2008 03:41 | Last updated: April 15 2008 03:41

Germany is set to launch the privatisation of Deutsche Bahn, one of the world’s biggest transport groups, after political leaders in Chancellor Angela Merkel’s ruling coalition on Monday agreed terms on the partial sell-off.

The political breakthrough on the landmark privatisation move – first conceived 14 years ago – came after pro-reform and leftwing factions in the Social Democratic party (SPD), the junior coalition partner, reached a compromise allowing the sale to go ahead, possibly later this year.

Under the plan, also agreed in outline by Ms Merkel’s Christian Democrats, Deutsche Bahn – Europe’s largest rail and logistics group – would become a holding company, controlling 75.1 per cent of passenger and freight transport and all of the entity running stations and the rail network. The 24.9 per cent stake in the transport arm would be sold in the flotation.

The sale is expected to raise €3bn-€5bn ($4.8bn-$7.9bn, £2.4bn-£4bn), experts said on Monday. Most of this would flow to the government, but some would be used to fund Deutsche Bahn’s investment plans in Germany, other European countries and elsewhere.

The company declined to comment, but Kurt Beck, who chairs the SPD, said Hartmut Mehdorn, Deutsche Bahn chief executive, welcomed the move. The company has been lobbying for years for a sell-off to raise necessary funds to expand services, especially ahead of 2010, when the European Union will open its borders to competition for rail passenger services.

Monday’s agreement on one of Germany’s largest remaining state assets will come as a relief to Ms Merkel. The partial sell-off is one of her government’s key remaining agenda items before elections in September 2009. The coalition is expected to agree the deal on April 28.

The pact is also important for Mr Beck, who has been under political attack for months for his handling of a political crisis within the SPD. Leftwing opposition to Bahn privatisation at an SPD congress last October appeared to have halted the project, and the left also influenced Monday’s deal, reducing the size of the privatisation stake from 49.9 per cent in earlier plans to 24.9 per cent.

That cap meant private investors would not have rights to seats on the holding company’s supervisory board, Mr Beck said, assuaging SPD and public fears that the entry of investors will lead to poorer services.

In spite of these limits, transport experts and CDU politicians welcomed the compromise as an important first step that might be followed after next year’s election by a second privatisation tranche. Ronald Pofalla, CDU general secretary, said the SPD proposal was “a good basis for negotiations”.

The company has 80 subsidiaries – including sea, trucking and air freight operations.

Freight transport accounts for 50 per cent of its sales, up from 20 per cent in 2000. Its subsidiaries include Schenker, Railon and Stinnes.

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