FRANCE: European legislation on the procurement of public services is starting to drive further consolidation between the major public transport operators. On July 22 state-owned investment body Caisse des Dépôts confirmed that it had decided to enter into exclusive negotiations with Veolia Environnement with a view to merging their Transdev and Veolia Transport subsidiaries.

With the talks expected to continue into early 2010, any merger would be subject to reaching a definitive agreement, as well as getting regulatory approval, but it already has the support of Paris transport operator RATP, which currently holds a 25·6% stake in Transdev. Caisse des Dépôts says it intends to remain a long-term investor in the merged entity, which it would initially own equally with Veolia Environnement.

Veolia’s Chairman & Chief Executive Officer Henri Proglio believes the planned merger would be ‘guided by very powerful industrial logic’ and ‘perfectly consistent with Veolia ?Environnement’s strategy, which sees transport as a key component of its environmental services offering’. He feels that it would also open up ‘outstanding growth prospects’.

The new business would have revenues totalling more than €8bn and around 130 000 employees. This would make it the largest private operator of public transport in the world, ahead of FirstGroup which currently has a turnover of around €7·2bn. It would also become the biggest player in the home market, with a 42% share against 35% for SNCF subsidiary Keolis.

Veolia insiders suggest that the merged company could be floated on the stock market when conditions permit, allowing the group to ‘externalise the value of our transport activity’, which ‘is not sufficiently recognised in the financial markets’. With its debt levels considered as being too high, Veolia has been pressed to sell off non-core operations to improve its balance sheet.

On August 3 the group revealed that it had started ‘exclusive discussions’ with SNCF and Europorte 2 over the sale of its rail freight operations for a reported €100m. Under the joint proposal, SNCF would acquire Veolia Cargo’s activities in Germany, Italy and the Benelux countries, while the Eurotunnel subsidiary would use Veolia's French operations as the basis for building a new business as a specialist operator of local freight services. Veolia Cargo has been forecast to achieve a turnover of around €1bn this year.