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Stagecoach offer rejected
TRANSPORT group Stagecoach reacted with "disappointment" yesterday after National Express snubbed its rival's takeover approach.
Stagecoach proposed an all-share offer, but National Express has broken off talks and pledged to press ahead with its own fundraising plan.
National Express said it was "unlikely" that a tie-up with Stagecoach could be achieved this year, even if suitable terms could be agreed.
But its suitor rejected this and added that a merger would have provided benefits for National Express including repairing the firm's relationship with the Department for Transport, which was damaged when it pulled out of its loss-making East Coast Main Line franchise. Stagecoach had submitted a preliminary offer that would have seen National Express take up to 40 per cent of the merged group, worth 1.7bn.
But National Express has also been working on plans for a rights issue to shore up its balance sheet and ease its 1bn debt pile. The firm said this fundraising was its chief aim.
The company said after evaluating the "value and certainty" of the Stagecoach offer it had concluded that it would not be completed this year.
"Accordingly, to avoid any further disruption to the business and to allow the group to secure the additional equity funding it requires before the end of 2009, all discussions with Stagecoach have now ceased," the firm said. It added that it believes it would be in shareholders' best interests to complete a cash call "as soon as possible", and expects to make a further announcement on the matter in November.
National Express recently warned that profits were below expectations due to higher debt fees and rising costs in the United States, while revenues also slowed.
The firm is still in discussions about handing back the London to Edinburgh East Coast route, which runs between London, Yorkshire and Edinburgh
Its other UK rail franchises are the East Anglia service and London commuter operation c2c, while it also has a bus division.
National Express has been the centre of takeover interest for some months, including a planned bid by a consortium led by its largest shareholder, the Spanish Cosmen family.
Stagecoach – the operator of South West Trains and East Midlands Trains – had been lined up to take on National Express's UK rail and bus business under the plans drawn up by the Cosmens and buyout firm CVC.
But the proposal collapsed earlier this month and Stagecoach decided to go it alone with a takeover approach.
Stagecoach yesterday confirmed that it will not make another bid for its rival within six months, barring a change in circumstances. It said National Express's working relationship with the Department for Transport had "clearly broken down" and a combined company would have reduced uncertainty for the firm's shareholders over its remaining rail franchises.
While it acknowledged that National Express had some "attractive" businesses in its operation, it said some of these were delivering "sub-optimal performance".
"Stagecoach is confident it possesses the management skill and experience to have impro-ved the performance of National Express' underperforming businesses," the firm said.
"In addition, Stagecoach believes it would have contributed a number of important aspects to the enlarged business, including a robust capital structure and a proven management team led by an experienced and respected chief executive."
What the analysts say
National Express yesterday said it would press on with plans to raise cash by selling shares.
It is expected to make an announcement about the proposed share sale in November.
"It's a perfectly sensible move to execute the rights issue first and then consider strategic options from a position of greater strength," said analyst Douglas McNeill at brokerage Astaire.
"Stagecoach has had two bites at the cherry now and I'm sure they regard National Express's assets as attractive, but I'm not sure whether they will be back with a bid anytime soon."
Ed Woolfitt, head of trading at Galvan Research, noted that Stagecoach's shares had risen after National Express snubbed its takeover approach.
He added: "National Express shares on the other hand look set to drift lower, and will probably remain in the low 320ps until the market improves, or another white knight rides to its rescue.
"Either way we will be most surprised if the current National Express management team remains intact."
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