Arcapita is conducting due diligence investigations of Freightliner ahead of reaching a conclusion on the deal, probably within about two weeks, according to people familiar with the situation.

Including debt it will assume, Arcapita is expected to pay about £350m for the operator, which was founded in 1965 by British Rail for the new market in hauling shipping containers by rail.

The potential sale follows years of speculation about the ownership of Freightliner, 76 per cent of whose shares are held by a consortium of 3i and Electra Capital Partners, both private equity investors. Management and employees hold the rest of the shares.

The two private equity investors have regularly sought potential buyers for Freightliner since backing a management buy-out of the company during rail privatisation in 1996.

Arcapita seems to have outbid SNCF, France’s state-owned train operator, which had looked at Freightliner as part of a Europe-wide acquisition spree but backed out several weeks ago. None of the parties involved would comment publicly.

Conclusion of a deal would be further proof of the attractiveness of Britain’s fast-growing rail freight sector after Germany’s Deutsche Bahn last year bought EWS, the largest company in the sector.

Freightliner was the only part of British Rail’s freight operations not to end up as part of EWS, which was assembled by Ed Burkhardt, a US rail entrepreneur. Freightliner initially stuck to its traditional role as a transporter of shipping containers – known as intermodal transport – but then started its heavy haul division to compete with EWS in the lucrative market hauling coal to power stations.

EWS was fined £4.1m for anti-competitive behaviour over its aggressive reaction to Freightliner’s market entry. Freightliner also has a business in Poland.

Arcapita is a privately-owned investment bank run on Islamic principles.

The UK has one of Europe’s fastest-growing rail freight markets, encouraged by government subsidy of some investments and relatively low fees for using track – freight trains pay only for the extra costs they impose on Network Rail, owner of the rail infrastructure. Most costs are paid by passenger train operators.

Intermodal traffic, where Freightliner is the largest operator, has grown particularly rapidly in recent years with soaring imports of containerised goods from Asia. Demand for coal has boosted the heavy haul division.

Freightliner is widely seen as having been a shrewder player of the market than EWS, which inherited more restrictive working practices from British Rail and over-invested in new locomotives under Mr Burkhardt.

See also:

Arcapita on track to buy Freightliner

Thomson Financial: 05.26.08

LONDON (Thomson Financial) - Bahrain-based investment bank Arcapita is expected to take over Freightliner, Britain's second-biggest rail freight operator, in a deal worth around 350 million pounds, including the debt it will assume, the Financial Times reports.

Arcapita is currently conducting due diligence and the deal is expected to close within about two weeks, the paper said, citing people familiar with the situation.

Freightliner is currently 76-percent owned by a consortium of private equity investors 3i and Electra Capital Partners.

See also:

Sharia-compliant fund on track for Freightliner

Telegraph: 26/05/2008
By Ben Harrington

The Bahrain-based investment fund Arcapita is in talks to acquire Freightliner, British Rail's former rail haulage division, for around £350m including debt.

The fund is on the verge of entering exclusive discussions to buy the business after Freightliner's private equity owners, 3i and Electra Partners, appointed the investment bank NM Rothschild earlier this year to sell the company.

French rail operator SNCF and Go-Ahead are also understood to have made it into the final stages of the auction and have been in negotiations to buy the business for several weeks, said sources.

If Arcapita fails to strike a deal within the next few days, it is thought SNCF and Go-Ahead could still buy the business.

Freightliner, whose wagons carry inland freight containers to inland terminals, was sold to 3i and Electra for just under £10m as part of a privatisation.

Sources said a sale to Arcapita could complete within a couple of weeks.

The possible deal comes as a growing number of gulf-based investors buy up huge amounts of British companies and infrastructure.

The new wave of private investment from the Middle Eastern sovereign wealth funds started in 2005 when Dubai Ports World bought container ports and ferry group P&O for about £3.3bn. Since then, budget hotel chain Travelodge and engineering group Doncasters have both been sold to Dubai International Capital, another division of Sheikh Mohammed bin Rashid Al Maktoum's Dubai Holding group.

Arcapita, though, is not a sovereign wealth fund.

The group, formerly known as First Islamic Investment Bank, uses its balance sheet to make investments and then syndicates the equity to high-net-worth, Gulf investors. It also only makes investments that are compliant with Sharia law, which forbids interest payments or usury.

For Electra Partners, the sale of Freightliner follows a series of major disposals, including the $2.5bn (£1.26bn) sale of Dakota Minnesota & Eastern Railroad to Canadian Pacific Railroad.

Sources said the private equity investment group, which manages a quoted investment trust, now has €1bn (£796m) to invest in buy-outs, mezzanine debt and real estate after raising a new £100m private fund from investors.

The establishment of a new fund, which will be invested alongside capital of the quoted investment trust, comes after Electra Partners split from Electra Partners Europe in 2006. After the split, Electra Partners Europe changed its name to Cognetas.

Electra Partners and Arcapita declined to comment. 3i did not return calls.

See also:

Electra Private Equity confirms in talks to sell stake in Freightliner

Thomson Financial: 05.27.08

LONDON (Thomson Financial) - Electra Private Equity Plc. confirmed that it is in discussions which may lead to the sale of its stake in Freightliner Group Ltd.

However, the company said there is no certainty as to the outcome of these ongoing talks and a further announcement will be made in due course.

See also:

Arcapita in talks to buy UK haulage firm

Arabian Business: 25 May 2008
by Dylan Bowman

ACQUISITION TARGET: Arcapita is close to sealing a deal to purchase Freightliner (pictured) for around $690 million. (Getty Images)

Bahrain Islamic investment bank Arcapita is looking to acquire UK rail freight operator Freightliner for around 350 million pounds ($692.9 million), sources close to the deal have said.

Arcapita is in talks with Freightliner's current private equity owners 3i and Electra Partners, and is close to entering "exclusive discussions" to buy the company, the haulage unit of British Rail, according to the UK's Sunday Telegraph newspaper.

The deal could be wrapped up within the next few weeks, the sources said.

Arcapita said in February it had completed a deal to buy US storage firm Portable On-Demand Storage (PODS) for $451.4 million.

In January the bank bought a Texas power plant for $695 million, its biggest US acquisition to date.

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Arcapita acquires top logistics firm

Gulf Daily News: 7th May 2008

MANAMA: Bahrain-based Arcapita Bank has completed the acquisition of Pinnacle Real Estate, a leading developer and operator of logistics warehouses in Central and Eastern Europe.

The transaction includes an existing portfolio of leased warehouses of approximately 230,000 sq/m, as well as a land bank of nearly 1.5 million sq/m for future development.

The majority shareholder prior to the acquisition was Merrill Lynch through its Global Principal Investments group.

Pinnacle was founded seven years ago, and in that time, the company has successfully grown into one of the leading developers in logistics in its markets of Central and Eastern Europe.

It has offices in the Czech Republic, Poland and Slovakia, and is well-placed to benefit from the positive economic development and the build out of distribution networks in Central and Eastern Europe.

"With its growing footprint in Central and Eastern Europe, we are very pleased to have added Pinnacle to our European real estate portfolio," said Arcapita chief executive officer Atif A Abdulmalik.

"Pinnacle has quickly built up an attractive mix of yielding and developmental assets to become a dominant developer in what we believe are high growth markets with excellent further appetite for modern and well situated warehousing and distribution facilities.

"Pinnacle also fits well with our existing portfolio of West European logistics warehouses, and takes our total European investment into this sector to over $1.4 billion, representing a total of approximately 2m sq/m of developed and developable warehouse space."

Arcapita's acquisition of Pinnacle solidifies its position as a major investor in industrial real estate in Europe, and the transaction joins the recent joint venture agreement with Prologis to form Prologis Middle East, which will develop and manage up to $1bn of modern logistics warehouses in Saudi Arabia and the rest of GCC, estimated to total over 1m sq/m.

Arcapita has also previously partnered with Prologis in the US, where it invested in 79 fully-leased assets across the country.