(Adds Deutsche Bahn comment, more detail, background)
By Arno Schuetze
FRANKFURT, Oct 6 (Reuters) - Deutsche Bahn has hired investment bank Lazard to explore options for its Arriva passenger transport business, including a possible stock market listing.
“By finding investors we aim to support growth in our two international business units (Arriva and Schenker) and to strengthen the financial stability of the group,” a Deutsche Bahn spokesman said on Tuesday, adding that it had turned to Lazard for its capital markets expertise.
The appointment of Lazard provides more evidence that the German railway operator is looking at ways to raise money in the face of increasing competition from foreign railway groups winning lucrative regional traffic contracts and also from the growing popularity of long-distance bus lines following a market liberalisation in 2013.
Deutsche Bahn’s operating profit fell almost six percent to 2.1 billion euros ($2.4 billion) last year and the company made more than 40 percent of that profit abroad.
Lazard has been asked to prepare a feasibility study for Arriva’s potential stock market flotation, two sources familiar with the matter said, adding that Deutsche Bahn’s supervisory board wants to use the study as a basis for discussions on the company’s future at its December meeting.
Last week, supervisory board sources told Reuters that Deutsche Bahn was likely to try to find a strategic investor or pension fund to take a minority stake in either Arriva or Deutsche Bahn’s Schenker logistics business. A stock market flotation was unlikely, they said at the time.
But it is Deutsche Bahn’s owner, the German government, that will have to take a decision on whether to list Arriva and, eventually, Schenker, or whether to try to attract money in a different manner.
Berlin cancelled a previous attempt to sell a minority stake in Deutsche Bahn when the global financial crisis hit in 2008.
Deutsche Bahn operates rail networks, stations, a long-distance and a regional rail business and has Arriva and Schenker.
If Deutsche Bahn does opt to list Arriva, it may float 25 percent of the bus and train operator as early as the second quarter of 2016, one of the sources said.
Arriva, which Deutsche Bahn bought for 1.6 billion pounds ($2.4 billion) in 2010, posted earnings before interest, taxes, depreciation, and amortization of 498 million euros on sales of 4.5 billion euros in 2014.
British peers like Stagecoach and National Express trade at 6.5 to 7 times their core earnings. If it fetches a similar multiple, Arriva may be valued at up to 3.5 billion euros in a potential deal.
A listing of Arriva and eventually Schenker could allow Deutsche Bahn to show how much of the group’s value lies in the two subsidiaries, one of the sources said. “That may show that it is actually a large part and that may prompt a re-think of the whole group strategy,” the source said.
Separately, McKinsey has been asked to explore possibilities to improve Deutsche Bahn’s structure in Germany, two other sources said.
Lazard and McKinsey declined to comment. ($1 = 0.8906 euros) ($1 = 0.6593 pounds) (Reporting by Arno Schuetze; Editing by Jonathan Gould and Jane Merriman)