REPORT BY THE COMPTROLLER
AND AUDITOR GENERAL
PRIVATISATION OF THE ROLLING STOCK LEASING
COMPANIES: (HC576)
MEMORANDUM SUBMITTED BY MR R TUCKER, GE
CAPITAL RAILCAR SERVICES
The Sale by the Government of the Rolling
Stock Leasing Companies and Angel Train Contracts in Particular
(PAC 97-98/310)
Note by Angel Train Contracts & The
Royal Bank of Scotland
The Original Bid
1. Angel Train Contracts was purchased from
the Government by the GRSH consortium.
2. The GRSH consortium was created by Nomura
International, Babcock & Brown and John Prideaux and his associates
with the sole purpose of bidding for a Rosco.
3. In contrast to the original acquisitions
of Eversholt and Porterbook, GRSH was not a management buy out
and none of the members of GRSH were involved with the Roscos
while they were in public ownership.
4. In particular, Dr. John Prideaux had
left British Rail (BR) before the sale process began and he had
no involvement in the creation of the Roscos while at BR.
5. GRSH bid for all three Roscos, but was
successful only in its bid for Angel Train Contracts. It paid
£136 million more for Angel than the management buy out offered.
(Please refer to tables 14 and 22 of NAO report).
6. GRSH made its bid in the expectation
that it would be competing against other well resourced bidders,
in addition to the management buy out bids.
7. GRSH estimated that it had the financial
resources and could structure its finances in such a way as to
submit bids of approximately £100 million more for each company
than the three management buy out bids could afford to offer.
8. It was only well after final bids were
submitted that bidders became aware that bids for the Roscos had
come only from GRSH and from each management buy out. (Please
refer to paragraphs 2.45, 2.47).
Royal Bank of Scotland Purchase of ATC
9. In December 1997, RBS bid for ATC alongside
other financial institutions in an open competition. Other potential
bidders remained in play up to 12 hours prior to signature. As
we understand it, this was a different process from other onward
sales.
10. The main reasons why RBS were willing
to pay £395m more in December 1997 than GRSH had paid on
privatisation (please refer to NAO paragraph 2.63) was a major
reduction in overall risk:-
- Robust management and improved
systems in place
- Reduction in political uncertainty
- Established potential for new
business-passenger demand increasing and new trains ordered
- The identity of the Train Operating
Companies who are ATC's customers is known.
- Evidence that maintenance cost
savings will be achieved.
11. The amount RBS paid for ATC is not a
reflection that ATC was originally sold at an undervalue but rather
a reflection of the factors identified in paragraph 10 above,
and that the perceived risks prevailing at the time of ATC's initial
sale in 1995 had mostly dissipated.
Angel Train Contracts & Royal Bank of Scotland
26th May 1998
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