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David Prosser: FirstGroup offers Adonis a cheap fare

Outlook: The combination of FirstGroup and National Express would have a stranglehold on certain types of service

Tuesday 30 June 2009 00:00 BST

One man who will be hoping that FirstGroup launches a hostile bid for rival transport group National Express is Lord Adonis, the Transport minister, for whom such a deal might just be a golden opportunity to wriggle off a difficult political hook.

In public, the Department for Transport has given the impression that it will not compromise with National Express over the terms of its under-performing East Coast Main Line franchise. Quite right, too: never mind the political hue and cry were the Government to cave in to National Express's demands, there would also be the small matter of every other rail operator running to the DfT for a similar handout.

In private, however, Lord Adonis knows he has a problem. National Express may have no one but itself to blame for the predicament in which it finds itself over the East Coast, but the parlous state of its finances means it does need a deal.

The Transport minister can play hardball – he has already threatened to strip National Express of its other franchises if it walks away from the East Coast – but it's not the strongest hand. If he were to re-auction those licences, there is a good chance none would raise what National Express has been paying for them.

However, were National Express to come under new ownership, Lord Adonis might find it easier to come to some sort of accommodation on this issue. One could imagine him justifying some sort of relaxation of the terms of the East Coast franchise if he could say, in the same breath, that the management responsible for getting National Express into its pickle had departed.

There would be some competition issues to wrestle with, because the combination of FirstGroup and National Express would have a stranglehold on certain types of service, particularly commuter journeys into London. Still, this too might present Lord Adonis with a PR opportunity: if he were able to force the combined group to give up certain franchises, he could argue that further sanctions had been imposed in return for an East Coast deal.

The speed with which National Express has rejected FirstGroup suggests that it thinks there may be interest from other parties – either domestic or international. Maybe so, though given the anti-Government outburst launched only last week by one obvious bidder, Stagecoach, the DfT isn't likely to be so keen on it.

As for an overseas bidder, the possibility of one of Europe's bigger players, particularly Germany's Deutsche Bahn, moving in on the UK has been mooted for some years. It may yet happen, but the regulatory issues peculiar to Britain's transport sector are distinctly offputting, as Ferrovial has discovered since its purchase of BAA.

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