Go-Ahead Sinks as U.K. Strips Southeastern Rail Franchise

(Bloomberg) -- Go-Ahead Group Plc lost a quarter of its value after being stripped of the U.K.’s Southeastern rail franchise by the government due to “a serious breach” of its operating agreement.

The U.K.’s Department for Transport said in a statement Tuesday that it would take over running services on the London commuter network next month. A government probe found that more than 25 million pounds ($34 million) of taxpayer funding should have been returned by the company. 

“On the basis of the available evidence, we consider this to be a significant breach of the good faith obligation within the franchise agreement,” the government said in a statement.

Go-Ahead shares sank 25% to 771.50 pence as of 1:59 p.m. in London. The intraday drop was the biggest since March 2020, and took the stock to its lowest since November. 

The Serious Fraud Office said it’s “aware of the matter but can neither confirm or deny interest.”

The Telegraph reported that Go-Ahead referred itself to the SFO. “There is no more we can say about that in the circumstances,” the company said.

Erros Made

Southeastern operates commuter trains from the counties of Kent and Sussex into the capital’s Charing Cross, Cannon Street, Victoria and London Bridge stations. It acknowledged that “errors have been made in relation to the franchise.”

Chief Financial Officer Elodie Brian resigned, and Go-Ahead postponed its full-year results for the year ended July 3. It will provide an update on further liabilities when they are published. Go-Ahead’s Govia Thameslink Railway (GTR) franchise isn’t affected by the decision on Southeastern, the company said.

Go-Ahead’s management was already in flux, with new chief executive officer Christian Schreyer due to join the group on Nov. 1. Chariman Clare Hollingsworth said the company was “working constructively” with the DfT towards a settlement.

Investigations are continuing into “all related historic contract issues,” the government said. Following those, it will consider further options for enforcement action, including statutory financial penalties.

“When trust is broken, we will act decisively,” Transport Secretary Grant Shapps, said in the statement. “The decision to take control of services makes unequivocally clear that we will not accept anything less from the private sector than a total commitment to their passengers and absolute transparency with taxpayer support.”

The government plans to transfer the running of services to its in-house Operator of Last Resort, which it said will ensure passengers see no interruption to their services.

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