Sebastian Trains Co (ST) is a UK based rail operating company which holds three UK rail
franchises. The franchises allow ST to run trains on the rail network in a particular
geographical area within the UK. All three of the franchises have been profitable over the
last 2 years, and they are all up for renewal in 3 years’ time.
ST is a listed company in the UK, and its most recent accounts show an operating profit of
£58.9m on a turnover of £206.8m.
The directors are keen to diversify the company’s operations geographically, in order to
reduce their reliance on the UK market, and to try to avoid the potential problem of having
all franchises up for renewal at the same time. An opportunity has arisen for ST to apply for
a 5 year rail franchise in Germany, where the currency is the Euro (€). The current rate of
exchange for the € to £ is €1.2525 per £1.
If ST were to win the franchise, a fee of €10m would be payable immediately to the German
Rail Authority, followed by an annual fee of €5m (nomina