One of the world’s biggest buyout firms has become the leading contender to acquire the operator of the beleaguered Northern Rail franchise in a deal worth about €2.5bn (£2.16bn).
Sky News has learnt that Carlyle has entered exclusive talks to buy Arriva Group, which operates in 14 European countries and employs 53,000 people.
Arriva’s owner, the German state-owned transport group Deutsche Bahn, has been deliberating whether to sell or float the company for several months.
A final decision is unlikely to be made before the end of the year, with uncertainty over the outcome of the Brexit process a factor in Deutsche Bahn’s thinking.
However, City sources said on Friday that Carlyle was now the “clear frontrunner” to buy Arriva if the German group decides to pursue an outright sale.
A formal bid is expected to be tabled this month and be considered by Deutsche Bahn board members in December, they added.
Rival bidders who showed an interest earlier in the dual-track process, including Apollo Global Management and a number of multinational transport companies, could still renew their appetite for a takeover.
Reports in recent months had indicated that Deutsche Bahn was seeking bids in excess of €3bn (£2.6bn), which could mean that any formal offer from Carlyle is deemed inadequate to clinch a deal.
Deutsche Bahn has owned Arriva, which is one of Britain’s biggest public transport operators, since 2010, when it struck a £1.6bn takeover deal.
Founded in a motorcycle shop in Sunderland by the Cowie family in 1938, Arriva gradually grew into a bus and train operator with a presence across much of Britain.
It now operates in countries including the Czech Republic, Croatia, Denmark and Poland and boasts of carrying 2bn passengers across its network each year.
Arriva also trades in the Netherlands, which is reported to be the likeliest destination for a stock market listing.
In the UK, Arriva has faced severe criticism over the crisis at Northern Rail, which has been beset by punctuality and capacity problems.
Grant Shapps, the transport secretary, recently said he had asked his officials to draw up contingency plans for nationalising the franchise, which operates 2800 services every day.
A mismanaged overhaul of Northern Rail’s timetable last year caused chaos for many thousands of passengers.
Arriva has also clashed with the government – notably Mr Shapps’ predecessor, Chris Grayling – over the process for awarding the East Midlands rail franchise.
In the bus sector, Arriva has an 18% share of the London market and a 15% share in the regions.
Acquiring the company would represent a big bet for Carlyle, which is facing seeing the remainder of its holding in the minicab company Addison Lee wiped out of it is taken over by its lenders.
Arriva’s rival, FirstGroup, is also facing a shake-up, with a proposal to sell its UK bus division following a campaign led by an activist investor.
Sources indicated on Friday that if it proceeded with a deal, Carlyle would deploy capital from several of its different funds to finance it.
The private equity group could also seek to team up with some of its own fund investors – or limited partners – to contribute financing.
Arriva and Carlyle declined to comment, while Deutsche Bahn said it had always indicated its intention to pursue a dual-track disposal process.
Deutsche Bank is advising the German transport company.
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