Stagecoach shares dive after pounds 389m fund-raising

STAGECOACH, THE bus and rail operator, struggled yesterday to convince the City of its ambitious US expansion plans as its share price slipped in the wake of a pounds 389m share issue.

Credit Suisse First Boston, the deal's lead manager, said it intended to enter the market to stabilise Stagecoach, which sought funds to refinance its $1.8bn purchase of Coach USA.

Shares in the Perth-based company touched a day-low of 153.5p - close to a two-year low - after the issue was priced at 154p a share, a 10 per cent discount to Monday's close. They ended the day 15.25p weaker at 164.25p. The stock has fallen since the purchase of Coach USA, America's second- largest operator, was unveiled in June.

Andrew Darke, an analyst at Williams de Broe, said: "I am surprised at the poor reception ... The lack of understanding of the US operation is deep and the assumption is to be cautious."

The shares ended at 226.5p the day the deal was announced, before falling to 187.5p when the share issue plan was unveiled on 20 September. Yesterday's issue of 260 million shares represents a 19 per cent enlargement of the share base: Stagecoach is 27 per cent lower since the deal was struck.

Stagecoach also said it was pressing on with efforts to tap the international debt markets to raise about $700m, including a $500m Yankee bond issue. The proceeds will help to underpin the US operations.

Analysts said Stagecoach had also been undermined by the fallout from the Paddington rail crash, and its disposal last week's of Swebus. Sector peers have also backtracked.

"The company is worth less than it was before the issue," Gert Zonneveld, an analyst at WestLB Panmure, said. "Current valuations are getting ridiculous."