SNCF and Eurotunnel to buy jointly out Veolia Cargo

Posted on November 20, 2009 by Matthieu Desiderio

Announced in May 2009, Veolia Cargo auctionning should be completed by the end of the year in the form of a joint buying from SNCF and Eurotunnel, if validated by the French and European competition authorities.

Following the 2008 4th quarter and first semester of 2009 which were heavily impacted in terms of activity, as for any other European rail freight undertakings, Veolia Transport voiced about selling its cargo branch, as a part of a 3 G€ asset selling plan, 1G€ having to be obtained by the end of the year.

Under a debt weighing about 2 G€ in 2008, and having performed a halved profit compared to 2007, hardly reaching 405 M€, Veolia Environment was looking to earn 100M€ with the cession of Veolia Cargo. This subsidiary of a revenue around 188M€ in 2008 had been experiencing an explosive growth since 2003. At that time, the rail operator was only consisting of its German and Netherlandish branches and was soon added the French branch, in 2005, which was accounting for CFTA Cargo and Socorail, as well as a new domestic operator, the whole French subsidiary accounting for a 50 M€ revenue in 2008. The growth was completed in early 2008 after the merging with the German rail operator Rail4Chem, created by a chemical shippers consortium. This last absorption led to a 60% growth in the revenue of Veolia Cargo.

The anouncement of Veolia Cargo cession led to some emotions within the railway undertakings community, especially towards the identity of a possible buyer. Veolia Cargo was indeed chronologically the first private company to have operated a freight train in France (in 2005) and was therefore regarded by many as the symbol of competition within the rail sector.

Quite unsurprisingly, the potential buyers were no one else than incumbants: DB-Schenker, SNCF and Trenitalia. DBS, which undertook a heavy year of external growths (mainly EWS, Transfesa, and increases in the capital of some Polish operators, etc.) finally withdrawn from the bidding process.

In the end, this is a quite unexpected joint acquisition that is likely to occur: SNCF is buying out Veolia Cargo foreign activities (Veolia Cargo Deutschland, Italia, Nederland), while Eurotunnel (via its subsidiary Europorte2) would purchase the domestic ones. SNCF is therefore in the ideal position, in which she acquires Veolia Cargo portfolios and assets abroad, especially the former Rail4Chem which will enable the French incumbent to compete directly with DBS on its domestic market, without having to deal with rationalization plans to manage the redundancies in their production system or competition authorities blaming in the case of a complete purchase of Veolia Cargo.

When it comes to Europorte2, the relevance of such a purchase is to be questionned. At the moment, this entity is exclusively operating from Fréthun (FR) to Dollands Moor (UK), that is to say from one side of the Channel tunnel to the other one, as a subcontractor for railways undertakings, even if the license under which is operating Europorte2 enables it to ride on the main lines, provided the drivers to be certificated on each trip.

Thus, if the domestic main line activities purchase can make sense when it comes to Europorte2, the way how other Veolia Cargo France subsidiaries, such as Socorail (terminal locomotives operations, manoeuvres, maintenance of terminal installations, etc. in ports or industrial plants) or CFTA Cargo (bundled management and operation of about 150km of freight only tracks to which the company is physically bonded by leasing) will benefit Eurotunnel group has yet to be found.

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