National Express slumps as Spanish bidder walks away

Bus and train operator to launch a rescue rights issue
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The Independent Online

Shares in National Express Group buckled yesterday after the consortium that has spent five weeks combing through the group's books walked away from a deal to buy the bus and train operator.

Spain's Cosmen family, which already owns a 19 per cent stake, and private equity firm CVC Capital Partners' decision to walk away from the 500p-a-share deal worth £765m, or about £1.7bn including National Express's debt, forced the company to announce plans for a rescue rights issue to strengthen its stretched balance sheet.

News of the takeover deal's collapse led to National Express's shares falling by 28 per cent at one point yesterday, before they recovered to close at 362p, 23.1 per cent lower than at the close of trading on Thursday evening.

The Cosmen family confirmed it would participate in the cash call "within certain parameters". The rights issue is expected to be launched quickly, with analysts speculating that the group would seek to raise at least £400m. It is likely to come at a significant discount to the current share price.

None of the parties were prepared to discuss the reasons for the end of the talks, with sources close to the failed deal saying yesterday that "lots of little things" had scuppered the deal, and that "after adding up all the issues, they came up a bit short".

It is understood the consortium and the company's management disagreed on National Express's timetable for the turnaround of its US business, which includes the Greyhound bus service. Industry analysts also speculated that the deal had fallen through because the group faced difficulties refinancing part of its £1bn debt pile, but sources denied there were refinancing concerns.

"We will now revert to plan A, which always involved a rights issue and existing as an independent company," said Ray O'Toole, National Express's chief operating officer.

"We have had strong feedback from investors and we would expect to announce the details within weeks rather than months. We have an interim management statement on Thursday, so we will be updating the market then."

National Express has not had a chief executive since July, when the group abandoned its East Coast mainline rail franchise and former chief executive Richard Bowker quit the company, taking a more lucrative job in Abu Dhabi.

Karl Burns, an analyst at Shore Capital, said a right issue would be tricky given National Express's position: "Any equity raising is likely to remain difficult given that National Express does not have a CEO and there remains the potential of a cross-default on the remaining two rail franchises, East Anglia and c2c," he said.

Rival transport operator Stagecoach confirmed that it had ended talks over plans to buy National Express's UK business, an agreement that had formed part of the Cosmen-CVC approach. However, Stagecoach said it would "consider every opportunity" and refused to rule out a renewed bid for the rail services.

The failure to secure a deal with Stagecoach also presents a headache for the Transport Secretary, Lord Adonis, who is looking at ways to force National Express to give up its profitable e2e and East Anglia rail franchises, after it effectively handed back operation of the East Coast mainline, saying the line was unprofitable.

The Department of Transport has previously said that it is unwilling to let the company control the profitable routes having extracted itself from the less lucrative franchise.

Mr O'Toole said that National Express would fight to keep hold of the e2e and East Anglia services.

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