Profits warning deals new blow to National Express

Bus and train operator insists that rescue rights issue is still its priority
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National Express's troubles deepened yesterday when the bus and train operator issued a profits warning, blaming increases in the cost of financing its £1bn debt pile.

The group stressed, however, that it would press ahead with its rescue rights issue, despite being told on Monday that its biggest shareholder, Spain's Cosmen family, would support a takeover bid from its rival Stagecoach. The family, which owns 19 per cent of the business, and Stagecoach, along with the private equity firm CVC Capital Partners, pulled out of a 500p a share deal to buy National Express last Friday over disagreements with the board about its plans to revive its flagging US business.

The company is understood to want to launch the cash call within weeks.

In yesterday's trading update, National Express, which has not had a chief executive since Richard Bowker left for a more lucrative job in Abu Dhabi in July, said "trading conditions have remained difficult during the third quarter with revenue slowing in a challenging economic environment".

As well as difficult trading conditions, National Express has faced other problems: Mr Bowker left the company after it handed the franchise to run the East Coast main line back to the Government, saying it could not make the line profitable.

Lord Adonis, the Transport Secretary, is considering forcing National Express to give up its East Anglia and c2c rail services. But the company's chief operating officer, Ray O'Toole, said that last week it would fight to keep the two franchises. He also reiterated yesterday that the rights issue was the board's priority. "We are moving ahead with plans for repairing the balance sheet through a rights issue. At the same time we will consider Stagecoach's approach and assess its values and risks."

Under Takeover Panel rules, the bid by Stagecoach needs the support of the National Express board.

The Cosmen family have said they will support the cash call "within certain parameters", despite also backing the Stagecoach bid. Stagecoach refused to comment yesterday, having said on Monday that any deal would be an all-shares transaction, in which it would control at least 60 per cent.