Virgin 'close to rail link victory'

Virgin, the airline-to-vodka empire headed by Richard Branson, is believed to be close to clinching the pounds 3bn deal with the Government to build the Channel Tunnel rail link.

A consortium that includes Virgin has been holding detailed talks with senior Department of Transport officials over the project to build the 68-mile link between London and the Kent coast. An announcement is expected next month.

The rival bidder Eurorail, backed by the construction groups Trafalgar House and BICC, was said yesterday to have fallen by the wayside after doubts were cast about its experience. But sources close to Eurorail said the partners remained optimistic.

If the deal goes to Virgin's consortium, London & Continental Railways, it will go some way to overcoming disappointments at Virgin after losing bids both to run the National Lottery and the new Channel 5 television service. The L&CR consortium includes National Express, the bus company, Bechtel, the American construction group, and SBC Warburg, the merchant bank.

In a separate move, Virgin has also embarked on an ambitious expansion of its book publishing business, emerging as a final bidder in the pounds 100m auction of Reed Consumer Books from Reed Elsevier.

The acquisition would give Virgin rights to a star-studded stable of authors including William Boyd and Roddy Doyle, and to well-loved names such as Winnie the Pooh and Thomas the Tank Engine.

It is believed that a rail link deal might include granting L&CR a 999- year contract to run the trains. Financing the rail link would come from a public flotation of L&CR, in which Virgin is said to have a 15 per cent stake, next year. Building the new line from its new terminus at Kings Cross to the coast would be completed within about six years.

Meanwhile, Virgin and National Express would take over the running of the Eurostar rail service to the Continent. Virgin has already declared an interest in running the Gatwick Express airport shuttle service, but there is fierce competition for the route, with British Airways rumoured to be interested.

Sources claim that Eurorail's bid, the rival to L&CR, is being vetoed by ministers who do not believe it could lift flagging sales of Eurostar tickets.

However, it is understood that Eurorail is disputing claims that it is out of the running. Senior members of its team were holding discussions at the Department of Transport on Friday.

Virgin's planned publishing acquisition would add names such as Hamlyn, Heinemann, Methuen and Secker & Warburg to its book operation, which made a profit last year of about pounds 1.5m on a turnover of pounds 15m. Virgin is thought to have trumped offers from a number of venture-capital backed rivals.

The bid falls far short of the pounds 250m price tag some City analysts originally thought Reed Consumer Books might command before a fall in profits and the recent demise of the Net Book Agreement. Virgin declined to comment on the proposed takeover.