UPDATE: Arriva In Merger Talks With Keolis

U.K. bus and rail operator Arriva PLC (ARI.LN) Thursday said it's in preliminary talks with state-owned Societe Nationale des Chemins de fer Francais, or SNCF, about a possible merger with France's public transport operator Keolis.

Arriva said talks are at an exploratory stage and cautioned there is no certainty an agreement will be reached.

The talks with SNCF center on the "possible contribution of all or part of Keolis' transportation business to Arriva to create a significantly enhanced and leading European transportation business focused on the increasing liberalization of the transportation market in Europe."

Keolis is owned by French insurer Axa SA (AXA), through Axa Private Equity and the Caisse depot et placement du Quebec, which have a 52% stake. SNCF has a 45.5% interest with key Keolis managers holding the remaining 2.5%.

Keolis is a minority partner with Go-Ahead Group PLC (GOG.LN) in Govia, which runs Southern, Southeastern and London Midland rail franchises in the U.K. It also operates the TransPennine Express rail franchise in partnership with FirstGroup PLC (FGP.LN).

In 2008, Keolis carried some two billion passengers and recorded revenue of EUR3.3 billion. It employs some 36,000 people across 11 countries. About 44% of its business is outside France.

In comparison, Arriva posted a full-year revenue of GBP3 billion for 2008 and employs 44,000 people across 12 European countries.

At 1156 GMT, Arriva's shares traded up 15 pence, or 3.3%, while the FTSE 250 Index traded up 0.6%. The shares have gained 7.9% in value in the past 12 months. The company has a market capitalization of GBP962 million.

By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; kaveri.niththyananthan@dowjones.com

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