German national rail service Deutsche Bahn signed a deal to sell its international subsidiary Arriva to U.S.-based investment group I Squared Capital, the company announced Thursday morning in Berlin.
Deutsche Bahn said the agreement was signed overnight, and the transaction is expected to be completed next year. The German government, which owns Deutsche Bahn, will need to approve the sale.
Arriva operates buses and trains in the United Kingdom and 10 other European markets. The company is among the operators of the iconic red double-decker buses in the British capital of London.
Deutsche Bahn declined to comment on the sale price, but according to media reports, I Squared Capital will pay about 1.6 billion euros ($1.7 billion) for Arriva. The reported price includes around 1 billion euros in debt still owed by Arriva, which the new owner will take on as part of the deal.
Deutsche Bahn had bought Arriva in 2010 for around $2.85 billion, including debt.
The investment group buying Arriva specializes in infrastructure projects and companies.
Selling Arriva means Deutsche Bahn will not have to invest large sums in the electrification of Arriva's bus fleets and general restructuring of the company in the coming years, freeing up capital for Deutsche Bahn to invest in its core rail business in Germany.
"Deutsche Bahn's strategic goal is to make record investments in environmentally friendly rail transport in its core German business," said Deutsche Bahn Chief Financial Officer Levin Holle.
Deutsche Bahn's decision to buy Arriva in 2010 under then-boss Rüdiger Grube was controversial from the start and met with widespread criticism in Germany. Green Party politician Anton Hofreiter described it at the time as an act of "megalomania."
Arriva and the earlier acquisition of freight subsidiary Schenker were part of an attempt by Deutsche Bahn to become a major global logistics and transport firm. The state-owned company spent billions of dollars on acquisitions under Rüdiger and his predecessor, Hartmut Mehdorn.
At the time, critics also argued that Deutsche Bahn should focus investments and energy on its core rail business in Germany instead of taking risks abroad.
The deal for Arriva never seemed to quite work at Deutsche Bahn, and the company has been looking for ways to offload the subsidiary for years. At one point, Deutsche Bahn considered spinning it off as a public company with an IPO.
However, potential buyers were few and far between, as poor performance at Arriva made it an unattractive investment.
The foreign subsidiary suffered particularly badly during the coronavirus pandemic and took a special write-down of $1.47 billion in the first half of 2020.
Those losses contributed significantly to the pandemic losses of the entire Deutsche Bahn Group and led the company to replace then-Arriva boss Manfred Rudhard.
Since then, the subsidiary has recovered to some extent. In the first half of this year, Arriva made an operating profit before interest and taxes (EBIT) of $45.4 million.
More recently, Deutsche Bahn has been focusing more on its core markets and has already sold its businesses in markets including Sweden, Portugal, Denmark, Serbia and Poland in recent years.