Stagecoach books its seat as Spanish group raises bid for National Express

Posted: Friday, September 4, 2009, 16:11 (BST)

The Spanish-led consortium bidding for National Express has increased its offer for the troubled transport operator to £765 million and struck a separate deal to sell its UK bus and rail divisions to Stagecoach.

Spain’s Cosmen family, the largest shareholder in National Express with an 18.6 per cent stake, and CVC Capital Partners, the private equity group, have raised their offer to 500p a share — more than 10 per cent higher than the bid rejected by the National Express board last week. The offer, described as final, is conditional on receiving a recommendation from the board.

The consortium said: “The offer provides the opportunity to draw a clear line under the recent difficulties associated with the company’s UK rail franchises, relations with the Department for Transport, balance sheet concerns and weak financial performance, all of which have resulted in a significant destruction of shareholder value.”

Stagecoach, which has ruled out making an independent bid for its rival, has not detailed what it will pay for the bus and rail divisions if the deal is agreed. The Scottish company has already had “constructive discussions” with the Department for Transport regarding a potential takeover of the East Anglia and C2C rail franchises that National Express operates. Brian Souter, chief executive of Stagecoach, said the company has agreed to pay a premium to the Department for Transport to take on the rail franchises.

Shares in National Express rose 54p to 466p, still well below the offer price. Stagecoach shares added 15p to 146p.

National Express has been in the takeover spotlight since the company agreed to relinquish its East Coast rail franchise because of mounting losses but has resisted attempts to consolidate the remaining businesses.

Led by John Devaney, its new chairman, the transport group plans to refinance its near-£1 billion of debt with a £350 million rights issue despite uncertainty over whether it will retain its two UK rail franchises and the weakness of its share price.

Mr Souter described the new offer as “a no brainer” for National Express shareholders. “They would be very foolish not to take this,” he said, adding that the prospect of raising funds would be “unattractive” given the uncertainty over the company’s rail franchises and its lack of a chief executive. Richard Bowker resigned in early July when it handed back the East Coast franchise.

However, one leading shareholder in National Express urged the board to hold separate talks with Stagecoach and the Cosmen family in an effort to secure better terms. “Stagecoach is very interested in some of the assets. Why can’t the board hold separate discussions and sell some assets to Stagecoach and some to the Cosmen family?” he asked.

An analysis of National Express’s four divisions by Joe Spooner, a Royal Bank of Scotland analyst, suggests that the UK bus business could be worth £240 million, the UK coach division £304 million and the North American school and transit bus operations £355 million. The Spanish coach business, the most valuable unit, which the Cosmens want to regain control of, has an enterprise value of £629 million, according to RBS.

The investor said that shareholders were behind the management team at National Express, particularly Mr Devaney. He added that National Express had alternatives, as shareholders were “not unsympathetic” to backing a rights issue of up to £350 million. National Express is considering the revised offer but refuses to be rushed into a decision, according to one source.

Go-Ahead, which reported a 15 per cent decline in pre-tax profits for the year to June 30 yesterday, declined to comment on whether it would make an offer for National Express if a bidding war emerged.

• Stagecoach may be forced to sell one of its bus services after the Competition Commission said that its takeover of a Lancashire operator will lead to poorer service and higher fares.