National Express, the acquisitive coach and airport operator, more than doubled in size yesterday with the £244m takeover of West Midlands Travel, a local bus company.
The merger will provide an average windfall of £30,000 for the 5,000- plus employees of WMT, who bought the company from the local passenger transport executive in December 1991 for £72m.
National Express is funding the purchase through the issue of 77 million new shares, which will increase its issued share capital by more than 60 per cent.
WMT has the biggest bus fleet in one concentrated area in Britain, servicing the big conurbations of Birmingham, Coventry and Wolverhampton.
Adam Mills, National Express's deputy chairman, said the population density of WMT's customer base made it particularly attractive as it tended to have high load factors with passengers making short journeys.
The management of WMT, which had been looking for a way to improve the marketability of the company's shares and develop the business, considered a stock market flotation, but decided a merger with National Express would be a quicker route to diversification.
National Express approached WMT and the local bus company did not hold talks with other likely buyers such as Stagecoach and Badgerline, the two biggest quoted bus companies.
The deal is complicated by the fact that 58 per cent of WMT's shares are held in an employees' trust. The trust will take up the share offer of 0.675 per cent of a National Express share for every one of WMT. There is a cash alternative that can be taken up by those who hold the 42 per cent of shares that are directly held.
The cash offer, which is for a maximum of £74.2m, is being underwritten by Morgan Grenfell. National Express is also raising £20.9m by way of a one-for-six rights issue. The total acquisition price includes deferred loyalty bonus shares to encourage shareholders to keep their interest in the enlarged group.
The management of WMT is also being given further incentives through the issue of more than a million share options in National Express. These are triggered if profits reach certain levels this year and next.
The WMT directors, three of whom join the board of the enlarged group, have forecast pre-tax profits of at least £26.4m this year.
National Express shares were suspended at 317p yesterday before the announcement.