Rise and fall of Railtrack

1996: Privatised. Shares cost �3.80 Sep 1997: Southall crash kills seven Oct 1998: Shares top �17 Oct 1999: Ladbroke Grove crash kills 31 Nov 1999: �1m a day profits Oct 2000: Hatfield crash kills four May 2001: First loss - �534m June 2001: Harshly criticised in Ladbroke Grove report October 2001: Placed into administration. Shares worth 280p

It is proposing to pay �500m to Railtrack in a deal designed to avoid the lengthy legal battle that threatened to hamper the rebuilding process.

That money - which includes the �300m from the government - could generate up to �2.50 a share for 250,000 shareholders, according to the BBC's transport correspondent Simon Montague.

Network Rail would also assume �6.5bn in debt, making the whole package effectively worth about �7bn.

But a government spokesman has denied the government is bailing out Railtrack shareholders who were furious when the company was put into administration last October.

Transport Secretary, Stephen Byers, had previously said that no public money would be offered as compensation.

'Bail-out'

Mr Byers has faced heavy criticism from financial institutions in the City of London to compensate shareholders.

The City was outraged by the decision to pull the plug on Railtrack even though the group was solvent.

Stephen Byers: 'No compensation'

Earlier this month a group of leading City institutions wrote to Chancellor Gordon Brown, warning him that the government's mishandling of Railtrack had caused considerable damage to its relationship with the City.

The government's commitment to give �300m of funds is being seen as part of the process of rebuilding the City's confidence in public private partnerships in order to make sure that funds are available for other projects.

The decision has led to accusations that Mr Byers has made a U-turn on policy.

Mr Byers claims the �300m grant reflects the benefits of an early exit from administration and so is not new money.

But Mr Byers had formerly given the impression that no compensation would be given to shareholders in any circumstances.

Good news?

Simon Haslam, a leading member of the Shareholder Action Group which has been fighting for compensation, told BBC Radio Four's Today programme that such a deal would be "a modest victory" for shareholders.

Network Rail's proposal marks a watershed for Britain's railways

Ian McAllister Network Rail chairman

Peter Lawrence from the Railway Development Society - which campaigns for improvements in the rail network - said the offer would provide some hope to rail workers who put their savings into Railtrack.

And Anthony Smith, national director of the Rail Passengers Council, welcomed the news as "good news for passengers because it ends the long term uncertainty about Railtrack's position".

Leading investment banker Stephen Lansdown said the offer amounted to government recognition that mistakes had been made in placing the firm in administration.

But he also warned that there was "more hard talking to be done" and shareholders may hold out for more than the expected offer of �2.50 a share.

'Watershed'

Network Rail is a not-for-profits company that will put money back into the business rather than giving a dividend to shareholders.

"Network Rail's proposal marks a watershed for Britain's railways," said Ian McAllister, chairman of Network Rail.

"It is an opportunity to endorse a better way of working, bringing the industry together for the benefit of all rail users."

The directors will consider the offer in detail... it will then be up to shareholders as to whether it should be accepted

Geoffrey Howe Railtrack plc chairman

In a statement, the firm said that it would make separate proposals to repay existing bondholders and intends to fully satisfy all other creditors, as and when due.

Mr McAllister has stressed that there is "no flexibility" in the offer, and says it hopes to reach an agreement with Railtrack Group within three weeks.

Railtrack plc's chairman, Geofrey Howe, says he welcomed the approach.

"The directors will consider the offer in detail. It will then be up to shareholders to have a full say as to whether it should be accepted," he said.

Network Rail has secured loans of up to �9bn and hopes to release Railtrack from administration at the end of July.