Arriva says D.Bahn makes offer worth 1.5 billion pounds

BERLIN (Reuters) - German state rail company Deutsche Bahn is willing to offer just over 1.5 billion pounds (1.8 billion euros) in cash to buy Arriva, the British train and bus operator said Monday.

Arriva said it was in advanced talks with Deutsche Bahn about its offer of 775 pence per share and that Arriva shareholders would be entitled to receive a proposed final dividend of 18.8 pence per share, in addition to Bahn's 775 pence per share cash offer.

Sources familiar with the matter had given Reuters details of the offer price earlier Monday.

Including Arriva's debt, the total offer amounts to 2.7 billion euros ($3.8 billion), the sources said, adding that the deal would be financed entirely through the issuance of bonds by the German company.

The takeover, which would be the most expensive in Deutsche Bahn's history, is aimed at strengthening its passenger service throughout Europe.

Deutsche Bahn's supervisory board is expected to approve the bid on Wednesday, one company source said.

Arriva shares, which surged one month ago when news of Deutsche Bahn's interest first surfaced, extended gains made after the Reuters story and closed up 3.3 percent at 761 pence.

The per share bid represents a 34 percent premium to Arriva's closing price on March 16, the day before news emerged that Arriva had been approached by Deutsche Bahn, and a 5 percent premium to the British firm's closing price on Friday.

"(An offer of) 775p doesn't seem like an outrageous multiple but it is a clear premium to Arriva and its peer group," said Gerald Khoo, an analyst at Arbuthnot.

Sunderland-based Arriva, Britain's third-biggest bus company, runs buses, rail franchises and other services in 12 European countries, making it one of the continent's few public transport operators with a wide international footprint.

In early March, it ended talks with SNCF over an equity tie-up with the French state railway group's transport unit Keolis.

Arriva shares are up nearly 60 percent since January 27, the day before news of the Keolis talks first broke.

The sources said Deutsche Bahn's offer broke down to 1.8 billion euros for Arriva's equity and an additional 900 million for its debt. Deutsche Bahn's top management would be given the power to react quickly with a new offer in the event of a counterbid from another company, such as SNCF, the sources said.

Deutsche Bahn Chief Executive Ruediger Grube said at the company's 2009 results news conference last month that his company was eyeing Arriva in light of the structural changes expected as the passenger transport market opens up in Europe.

(Writing by Noah Barkin, Jonathan Gould and Sarah Marsh, additional reporting by Rhys Jones in London; Editing by Louise Heavens and Rupert Winchester)