It's murder, everywhere but the Orient Express

At Sea Containers, the Bermuda- based conglomerate that owns the GNER rail franchise, a fine of up to $15m (£8.1m) and the loss of a services contract at its only profitable business is what passes for good news these days.

The fine, decided by an arbitrator last week, ends a long-running dispute between the company and finance firm GE Capital over service fees that Sea Containers charged its partner in GE SeaCo, their lucrative joint venture in container leasing. "We look forward to drawing a line under this and concentrating on developing the business," says its chief executive, Bob MacKenzie.

The ruling will mean more redundancies, but more importantly, it removes a cloud over the singular bright spot in the odd mishmash of assets that founder James Sherwood amassed for Sea Containers over more than four decades. "There is a great deal of common ground between the two shareholders in terms of our shared vision for GE SeaCo," says Mr MacKenzie of the settlement. "The priority is to reduce costs and increase net operating cash flow across the container businesses."

Mr Sherwood, 72, announced his surprise resignation from the group in March after his recovery from a severe bout of pneumonia. This cleared the way for Mr MacKenzie, a turnaround specialist who was hired in January, to right the foundering business. The company doctor still has plenty of work to do.

Apart from losing the exclusive right to supply services to GE SeaCo, its ferry unit Hoverspeed has collapsed. More broadly, speculation is swirling about a breakup and possible insolvency. Mr MacKenzie postponed the group's annual results last week as he has yet to complete his review of its operations, which include the loss-making GNER rail franchise. That followed the bombshell he dropped on investors in March - just three days after Mr Sherwood announced his exit - in the form of a $500m writedown and a plan to sell the struggling ferries business, one of Sea Containers' biggest units.

Hedge funds have piled into the stock, which has lost more than half its value in the past two months. Appaloosa Management, a distressed-debt fund embroiled in the high-profile US bankruptcies of auto-part makers Delphi and Dana, is now the company's second-largest investor with 11.3 per cent. Concerns have been raised about the vulnerability of GNER should the parent go under or be sold.

Shareholders, meanwhile, are perplexed by the drastic downward turn. "The whole situation is confusing. Have things turned so poor for the rail and container operations to justify talking as if the company is going to go bankrupt?" asks one big investor. "The numbers they have bandied about have been extremely misleading. They may be seeing something that can't be explained to us, but there is a disconnect here."

Mr MacKenzie and other managers have not helped their cause with the funereal tone emanating from Sea Containers House on the South Bank of the Thames."They seem to be talking down their own shares," says Kevin Starke at stockbrokers Weeden & Co. That is worrying for some, who say the desperate air around the company may inspire some potential buyers of the various assets to wait to see if Sea Containers goes bust and buy what they want on the cheap.

The problem for the group, a one-time owner of the Orient Express, is its $1.3bn debt. Mr Sherwood, the American entrepreneur who launched it with a $100,000 loan in 1965, was never shy about gearing up to fuel expansion. "They have never been investment grade," says Betsy Snyder of credit rating agency Standard & Poor's. "They have always had an aggressive balance sheet." Aside from the container business and GNER, the company controls Baltic ferry line Silja, a Brazilian grape farm and an Ivory Coast banana plantation, among other businesses.

But what took 42 years to cobble together has begun unravelling at an alarming pace. Mr MacKenzie has discovered "a number of operational challenges", and the solution looks like it will be a dismantling of the house that Mr Sherwood built. (The founder remains chairman of Orient Express Hotels, the group that he spun out of Sea Containers in 2000.)

Sea Containers' huge debts stem from business assumptions that were either too ambitious or have been buffeted by outside forces. Its ferry operation has suffered from rising fuel costs and lighter passenger loads, while GNER has been hurt by a drop in train travel as a result of the July tube bombing in London and increased competition.

As the losses mount, its credit has worsened. The March writedown put the company in breach of some of its loan covenants, and a $115m debt payment is due in October. S&P has downgraded the company twice since March to just above default status. Its sprawling assets have made losses in the past two years, and are expected to do so again this year.

GNER, the company says, is ringfenced from the rest of the group and therefore secure. But if either it or Sea Containers were sold, the Department for Transport would have to approve the new owner as the franchise holder for the north-east line.

Sea Containers' priority now is to sell its Silja ferries unit, which owns eight cruise liners running between Finland, Sweden and Estonia. The company has said the sale should cover the debt secured by its ferry assets, which as of the third quarter last year stood at $649m.

David Tepper, the head of the Appaloosa hedge fund, is banking on the sale to give a quick boost to the share price. "The thing they have to do is get Silja sold," he says. "The question is whether the guys running it now can do the job."

The auction process, which began in November, has lagged, and the company has refused to give a timeline beyond saying it will be concluded "soon".

If and when that does get done, it won't mean any respite for Mr MacKenzie.

Sea Containers shares closed on Friday at $7.52 per share, having rebounded from the low of $4.92 reached earlier in the week.

Mr Starke estimates that a breakup of the company could give it a valuation equal to at least $12 a share. Mr Tepper is more ambitious: "If you do a sum of the different parts, you could easily get to $15 or $20 a share."

One of the last true conglomerates looks close to taking its last breath.

BERMUDA TRIANGLE: TIMETABLE TO CHAOS

1965: Sea Containers founded, taking delivery of its first container ship in 1969.

1974: Sea Containers listed on the New York Stock Exchange.

1976: buys the Hotel Cipriani in Venice.

1982: starts shipping bananas from Central America. Restarts the Venice Simplon Orient Express service.

1983: the group's hotels division buys the Windermere Island Club in the Bahamas. Lake Windermere Iron Steamship Company acquired.

1984: Sealink UK ferry service bought from British Railways.

1985: Illustrated London News Group acquired from Thomson Organisation.

1986: buys Hoverspeed Ferries.

1989-90: spending spree nets the Copacabana Palace Hotel in Rio de Janeiro, the Windsor Court Hotel in New Orleans and a majority share in an Ivory Coast banana plantation. The SeaCat twin-hulled ferry is introduced on cross-Channel routes.

1990-91: some operations in Italy, Singapore and Australia are shut down or sold.

1992: the Windermere Island Club and the Lake Windermere steamboat company are sold. The Stranraer-Belfast SeaCat crossing is established.

1993: first running of the luxury Eastern & Oriental Express from Singapore to Bangkok via Kuala Lumpur.

1996: GNER wins first franchise for seven years - the East Coast rail line

1997: container-leasing joint venture agreed with GE Capital, called GE SeaCo.

1998: 51 per cent of Silja Line, a Baltic ferry operator, acquired.

1999: hotels in Portugal, the US, France and Italy acquired.

2000: begins tourist joint venture in Peru, Cusco and Machu Picchu. Grape farm in Petrolina, Brazil, developed. Orient Express Hotels and Sea Containers became separately listed on the New York Stock Exchange. Hovercraft withdrawn from cross-channel services.

2001: awarded 40-year contract by Greek government to operate the Corinth Canal.

2002: sale of port interests in UK. Buys rest of Silja Line. Resorts in Mexico acquired.

2004-05: GNER teams up with Laing to bid for the Greater Western rail franchise - to be awarded later this year. Ritz Hotel in Madrid acquired.

2005: GE Capital seeks to transfer joint-venture costs from GE SeaCo to Sea Containers, which Sea Containers resists. GNER wins bid for renewal of its East Coast franchise. Hoverspeed's Dover-Ostend and Dover-Calais service stopped.

2006: Bob MacKenzie joins in January as chief executive. James Sherwood steps down as chairman in March. Exit from ferry business announced, along with asset writedowns.