Chancellor Angela Merkel's ruling coalition on Friday, May 30, approved a proposal in parliament to allow private investors to buy up to 24.9 percent of Deutsche Bahn's passenger and logistics operations with Deutsche Bahn expected to make its stock market debut later this year.

The Bundestag vote saw 355 deputies approve the measure with 153 against and three abstaining. Nearly 100 MPs did not cast a ballot.

The move by the Bundestag to sign off on the privatization plan came despite the three opposition parties voting against the sell-off and stiff resistance from the influential leftwing faction of the Social Democrats, the junior member of Merkel's conservative-led coalition.

Mehdorn promises the sell-off will benefit passengers

"It is a good day for (rail) travelers, taxpayers and employees," Deutsche Bahn chief Hartmut Mehdorn said.

"Today's decision secures the future of the company and its 237,000 employees," he said in a statement. "Now we must make the partial privatization a success together in the coming months and strengthen Germany's position as a place to do business."

Compromise between parties

The privatization of Deutsche Bahn has been on the cards since 1994, when the rail operators of the former West and East Germany merged.

But the plans were delayed by the company's disastrous financial situation following the unification of the country.

The left-right government was sharply divided between Christian Democrats backing the privatization and Social Democrats raising concerns about potential job cuts at Deutsche Bahn.

They struck a compromise to avoid handing a foreign investor a blocking minority, which German law has set as a 25-percent stake in a company.

Deutsche Bahn and trade unions have also agreed on a plan that would prevent any layoffs at the company until 2023.

Analysts say the planned partial privatization should generate about six billion euros ($9.3 billion) with proponents of the sell-off saying it would help to mobilize capital for the railway.

Experts criticize plan

But the 24.9 percent share sell off, which was proposed by Social Democratic chief Kurt Beck as a compromise, falls short of the 49.9 percent that Merkel's supporters have argued for.

Indeed, senior members of Merkel's Christian Democratic Union have indicated that they see the 24.9 percent as representing possibly the sale of the first tranche of shares in the railway company.

Deutsche Bahn's partial privatization follows years of wrangling between Germany's politicians

Moreover, analysts have criticized the privatization model as resulting in only a small parcel of shares being sold off. This could result in the stock ending up principally in the hands of big institutional investors, some analysts say.

Under the plan, the state would have a 75.1-percent stake of Deutsche Bahn's passenger and freight operations.

The partial privatization, however, means that Berlin would retain a 100-percent control of the rail company's railway stations as well as its 34,000 kilometers of track network and energy supplier operations.

- DPA News Agency (sp)

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German Lower House Supports Deutsche Bahn Privatization

The Wall Street Journal: May 30, 2008
By ANDREA THOMAS

BERLIN -- Germany's lower house of Parliament Friday supported the controversial planned partial privatization of railway operator Deutsche Bahn AG.

"I am convinced we are opening the door for a good future of Deutsche Bahn," German Transport Minister Wolfgang Tiefensee told the lower house in a debate. He rejected suggestions the company's service would suffer from the decision. "The opposite is true, we will get better."

The government plans to sell 24.9% of Deutsche Bahn in a public offering late this year, privatizing the last big state-owned company.

Mr. Tiefensee has said the partial privatization of Deutsche Bahn's passenger and freight services and the logistic unit in form of a holding company would take place in November. It is expected to generate proceeds of €5 billion to €8 billion.

All stations and track will remain in full state ownership.

The proposal faced heated debate in the lower house because the government decided it only required cabinet approval, not that of Parliament. The opposition party The Left has filed a legal complaint against the decision. In Friday's lower house vote, lawmakers were only asked to vote on a motion but not on a bill. It was supported by votes from a large majority in the lower house.

The plan has also been controversial because some lawmakers fear the privatization might hurt the local railway transportation system, which isn't as profitable as the long-distance transportation.

Two-thirds of the privatization proceeds will go to Deutsche Bahn to boost its capital base and to invest in projects such as track network. The rest will go to the federal budget.