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GB Railfreight takes early Brexit as DB Rail cuts back

STOCKHOLM/LONDON: October 20, 2016. GB Railfreight, the UK's third largest rail freight operator, has received an irrevocable offer to buy the company from Swedish private equity group EQT Infrastructure on behalf of subsidiary Hector Rail, a provider of rail traction services throughout Scandinavia and Germany.

Terms are not disclosed and are subject to consultation with labor representatives from GB Railfreight owner Groupe Eurotunnel. If the offer is accepted, EQT says it will integrate GB Railfreight into Hector Rail as part of a goal to develop a pan-European rail network.

Founded in 1999 by the current CEO John Smith, GB Railfreight operates over 1,000 trainloads a week on behalf of Drax, Network Rail, EDF Energy, MSC UK, Aggregate Industries and Tarmac with a fleet of 130 locomotives and 1,100 wagons.

"We are very pleased with EQT as our new owner and strongly believe that EQT's industrial approach and network, extensive rail freight experience and access to capital will be of valuable support to GB Railfreight in our continued growth ambitions," said Smith.

Hector RailThe acquisition coincides with the announcement by Deutsche Bahn (DB) Rail of a substantial contraction in its UK operation that includes nearly 900 redundancies, a further downsizing of its locomotive and wagon fleet, and a revision of the number and locations of its operational sites.

The company cites "unprecedented challenges with the dramatic decline in core markets such as coal" for the decision, according to DB Cargo CEO Hans-Georg Werner:

"Responsible and successful businesses must evolve and reshape as their markets change and sometimes this means making tough decisions. Whilst this is a difficult time for all of us at DB Cargo UK, reshaping the company will enable us to build a business for the future and protect the majority of jobs."

Smith echoes Werner's view of the declining UK coal market that he attributes to "more draconian carbon emissions controls than are required by the EU" but explained the company is surviving by growing its passenger, aggregates and intermodal markets.

However he noted: "It seems clear that any exit from the EU will lead to an economic recession. The only arguments appear to be around how deep and long this will be.

"It is also worth reflecting on a number of our commercial arrangements in the light of our EU membership. Many of our customers have strong links to the rest of Europe. Czech business, EPH, has bought Lynemouth Power; Aggregate Industries is owned by the French/German conglomerate LafargeHolcim; and EDF Energy is French-owned," he continued.

"Most importantly, we buy our wagons in Romania and Poland. Our membership makes trade simple and quick. [So] "the logic of leaping into the unknown is definitely not attractive. Whilst the EU is bureaucratic and on occasions frustrating, I see no reason to think this will change in isolation.

"What makes the EU work is not Brussels nor Strasbourg, but businesses like our own doing deals across Europe day-in day-out, deals that are facilitated by our membership," Smith concluded.

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