UK takes on creaking rail network

LONDON, England -- After six years as a private company, Britain's Railtrack came full circle on Thursday as the insolvent rail network was taken over by a new state-backed company.

Network Rail, a non-profit company, will buy the railway business from Railtrack Group for £500 million ($763 million). Another group, London & Continental Railways, will pay £375 million for Railtrack's stake in the Channel Tunnel rail link.

The government-backed company has agreed to borrow £9 billion from a group of banks to purchase the network and pay off Railtrack's £7.1 billion.

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The Labour government, which had been opposed to privatisation whilst in opposition, decided last October to put Railtrack into administration after a spate of fatal crashes and rising debt. But the decision caused a backlash from thousands of small shareholders and investment funds.

The new owners have promised to move quickly to improve the finances of the rail system.

"Network Rail will deliver Railtrack out of administration at the earliest opportunity, " the company said in a statement.

Railtrack was created in 1996 when the previous Conservative government privatised British Rail, handing the world's oldest rail system -- comprising 40,000 kilometres of track and 2,500 stations -- over to Railtrack and creating more than 20 private train franchises.

The company debuted on the London Stock Exchange on January 3 of the same year with an issue price of 380 pence. When trading was suspended on October 7, 2001 it shares were worth 280 pence and its market value was around £1.4 billion.

Railtrack (RTK) shares resumed trading on Thursday at 274 pence. They were down 18.1 percent to 224 pence at mid-morning.

With the sale to Network Rail and London & Continental, shareholders are expected to receive between 245 and 255 pence a share.

A shareholders meeting has been scheduled for July 23 to approve the purchases.

"There is no doubt in the board's mind that to accept this offer is in the best interests of the shareholders,'' Railtrack Group Chairman Geoffrey Howe told BBC radio.

"These offers are the best that we have had for the assets of the company and we have to evaluate that against the other alternative, which was to continue with litigation to try to recover funds for our shareholders.''