Carlisle-based aviation and energy firm Stobart Group said on Wednesday it sold Stobart Rail Limited — which owns its Rail & Civils division — to Bavaria Industries Group AG for an initial cash consideration of £1,000.

Stobart Group said an additional payment of up to £2.9 million may be received “based on the outcome on conclusion of a single legacy contract.”

Stobart Group shares rose about 11%. Stobart Group’s biggest shareholder is London hedge fund Toscafund with about 28% of the firm’s stock.

188 employees will transfer as part of the transaction.

“This follows the commitment made alongside the group’s FY20 results to exit the Rail & Civils business by the end of FY21, following the continued losses within that business,” said Stobart Group.

“The agreement is on a debt free basis including the waiver of intercompany balances involving Stobart Rail and also includes the transfer of specialist plant and equipment in addition to a three-month Transitional Service Agreement for certain back office services to support Stobart Rail & Civils in the immediate term.”

Stobart Group CEO Warwick Brady said: “In June we set out our strategy which will see the group focus its investment on our aviation assets, particularly London Southend Airport. 

“The sale of the Rail & Civils business removes the obligation for the group to fund the expected ongoing losses of the rail business and is a first step in achieving our goal of focusing our investment on aviation.”

As at February 29, 2020, Stobart Rail Limited has gross assets of £32.8 million and net liabilities of £11.8 million. The loss before tax for the year ended February 29 was £10.1 million. 

The transaction will result in an estimated loss on disposal of £9 million after costs, before any additional consideration which may be received.