National Express sells Essex rail franchise to Italian state operator

One of the UK’s most successful passenger rail franchises was set to change hands on Wednesday, as National Express Group announced it had reached an in principle agreement for Trenitalia - the passenger rail transportation company part of the state-owned FS Italiane Group - to acquire c2c.

The FTSE 250 firm said completion of the acquisition - which would signal the end of its involvement in UK rail operations - is conditional upon final consent from the Department for Transport, which is expected to occur within the next three to four weeks.

It said the total consideration is expected to be in the region of £70m, resulting in a small net profit for National Express.

The National Express board said that following initial partnership discussions regarding future franchise bidding, Trenitalia UK made an offer that it said represented the best, and a fair, deal for its shareholders.

It said it was “immensely proud” of its record at c2c, where under its tenure services had been transformed to become one of the UK's best performing rail operations.

“While not ruling out participating in future UK rail contracts, National Express has seen significant growth in North America and continental Europe in recent years,” the company’s board said in its statement.

“National Express believes there are further opportunities for growth in these markets.”

It said the “high-quality services and operations” run by c2c made an excellent fit with Trenitalia's customer-centric approach.

Trenitalia decided to invest in UK rail on the basis of the market's fundamental strength and potential for growth, particularly in light of the Secretary of State for Transport's recently announced vision for reform.

The acquisition marked the first step in Trenitalia's plans to expand in the UK rail passenger market, in line with the internationalisation plans of the entire FS Italiane Group.

In December 2015, Trenitalia became the first new entrant to be awarded a ‘PQQ Passport’ by the Department for Transport and since then has been pursuing a number of franchise opportunities.

Trenitalia would retain c2c's existing management and staff, National Express said, and was committed to invest for further improvements for all c2c's customers based on “innovative technologies”.

c2c - originally known as LTS Rail - operated the London, Tilbury and Southend franchise and its successor Essex Thameside franchise since privatisation in 1996.

It became part of the National Express group when the coach operator acquired the then-AIM traded Prism Rail in July 2000.

“National Express has been immensely proud of c2c's transformation on our watch,” said CEO Dean Finch.

“From converting c2c into the UK's consistently best performing franchise, we have also recently pioneered customer service standards with automatic delay compensation and flexi-season tickets, for example.

“While this has, therefore, not been an easy decision, the board believes the transfer of c2c to Trenitalia UK presents opportunities for all concerned.”

Finch said the National Express board had been impressed by the commitment and interest shown by Trenitalia, and was grateful for the support shown by DfT in this process.

“Trenitalia has significant rail credentials and is excited by the opportunity to invest in the new agenda set out by the Secretary of State.

“For National Express, while not ruling out participating in future UK rail bids, this allows us to pursue further growth opportunities in the markets where we have seen strong returns in the recent years.”

Barbara Morgante, CEO of Trenitalia, said the Italian state railway operator saw significant chances to invest in UK rail, with the in principle agreement with National Express allowing it to foster those ambitions.

“This is why we are extremely delighted to have this exciting opportunity to run the UK's consistently best performing railway and serve the people of East London and South Essex.

“We will work closely with customers and local stakeholders to apply our vision and deliver improvements that will be visible and valuable; we are confident that British customers will benefit from our skill and capabilities developed in the highly competitive Italian market.

Morgante said Trenitalia was also closely monitoring the Railways Franchising Programme as it intended to participate in tenders issued by the DfT to strengthen our presence in UK.