Stagecoach and National Express debate terms for possible deal

Rights issue still 'a priority' despite battered balances and doubts over franchise
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The Independent Online

The troubled bus and train operator National Express yesterday insisted that plans to launch a rights issue remain its priority, despite a renewed offer from its rival Stagecoach.

National Express confirmed weekend reports that Perth-based Stagecoach had launched a friendly, all-shares takeover bid on its own. Stagecoach said it was still finalising its proposal but would want to own at least 60 per cent of the combined group.

Stagecoach is barred from making a hostile bid for National Express until next March under Takeover Panel rules linked to its role in the Cosmen consortium, which pulled out of a 500p a share deal to buy the group last Friday.

While being careful not to dismiss the Stagecoach offer, National Express said its planned rights issue, which will almost certainly come at a discount and is expected to raise about £400m, remains its priority. The group is likely to confirm the details on Thursday, when it is scheduled to give a trading update. "The board believes that it is now necessary to rapidly conclude this phase of potential corporate activity to avoid further disruption to the business and to allow the group to secure additional equity funding before the end of 2009," it said yesterday.

The Spanish investors who already owns 19 per cent of National Express, the Cosmen family, have said they will back the rights issue but qualified their support, saying they would participate "within certain parameters".

Experts said the speculative nature of the Stagecoach bid did not fit with National Express's need to resolve its problems quickly. "The 'highly preliminary' nature of Stagecoach's latest approach is at odds to National Express's needs at this point to now get on with things, having been held back by the various approaches since the summer (of which Stagecoach played a part with the consortium bid)," said analysts at Royal Bank of Scotland.

"National Express has to resolve its balance sheet, resolve the future of its rail unit and find a new CEO – all sooner rather than later. Stagecoach will need board approval to progress since it is less than six months since it gave a commitment [on 3 September] not to pursue an independent bid for National Express."

On Friday, National Express's shares fell by 23 per cent when the Cosmen family, the private equity group CVC and Stagecoach walked away from a bid to buy the company, citing their concerns about National Express's flagging US business.

Indeed, National Express has been in disarray since July when it handed back its East Coast main line rail franchise, arguing that it could not make the line profitable. At the same time, Richard Bowker quit as chief executive, a post which remains unfilled, to take a more lucrative job in Abu Dhabi. National Express also has £1bn of debt.

The Transport Secretary, Lord Adonis, is thought to be unhappy that the company is holding on to its profitable East Anglia and e2e rail networks, and is considering a move to take the services back under state control.