SNCF enters merger talks with Arriva

SNCF, the French state-owned rail operator, is in talks with Arriva, the UK transport operator, over moves to create a pan-European transport group with revenues of about €6 billion.

The talks come against the background of liberalisation of Europe’s railway operations following new competition rules introduced on January 1.

Arriva, which has a significant presence in continental Europe, confirmed that it was in very early talks with SNCF over a combination of Arriva and all, or part of, Keolis, its transportation business.

Industry experts believe that SNCF is interested in raising its pan-European presence. This follows last July’s announcement by French rival Veolia Transport of plans to merge with Transdev, controlled by France’s state-owned Caisse des Depots. The merger would create a new group with annual revenue of about €8bn.

However SNCF’s main competitor across Europe remains Deutsche Bahn, the German state-owned operator, which has earmarked its desire to run services outside of its domestic market.

It owns Chiltern Railways and has said that it would like to compete with Eurostar in running passenger services through the Channel Tunnel.

Arriva’s mainland European division reported £1.4 billion in revenues for 2008 but lacks a significant presence in France to match its operations in other big European countries and Scandinavia.

Adding Keolis to its business would transform the size of Arriva, accelerating it to the stature of competitor FirstGroup, with the attendant economies of scale and influence.

In a statement to the Stock Exchange, Arriva said: “The board affirms that discussions are at a preliminary, exploratory stage and that there is no certainty that any agreement will be reached.”