National Express says no to FirstGroup

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The Independent Online

National Express has rejected an unsolicited approach from rival FirstGroup on the grounds that such discussions would be "inappropriate".

The beleaguered transport group, which is due to publish a trading update tomorrow, was forced to issue a formal statement to the Stock Exchange yesterday following rumours of an all-share offer from its larger competitor.

"At the present time, the board is focused on implementing a number of initiatives to strengthen the group and does not consider it appropriate to enter into discussions with FirstGroup," the company said.

It has been a tricky year for National Express. Last week, the group did a deal with its bankers to relax the terms on its £1.2bn debt, but problems at its £1.4bn East Coast rail franchise are no nearer a solution.

To fund the payment commitments of the East Coast deal – £138m this year alone – National Express needs passenger revenue growth of more than 9 per cent. But recession took growth down to just 0.3 per cent in the year to March, and the Government is refusing to renegotiate the terms of the deal.

In February, National Express cut its dividend from 26.4p to just 10p, clawing back some £30m. And it has a cost-cutting programme including axing 750 jobs, mainly in the East Coast division. A rights issue looking for anything up to £400m is also widely expected, but could struggle given the questions over East Coast.

Despite the initial rejection, FirstGroup may not be so easily dissuaded. In acknowledging its preliminary approach yesterday, the company indicated ongoing interest. "The board of FirstGroup continues to believe that there is significant industrial and commercial logic in a combination of the two companies," the statement said.