Mergers & Acquisitions updates
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National Express is in talks to buy smaller rival Stagecoach in a deal that would bring together two of the UK’s largest transport operators as the pandemic-ravaged industry emerges from the crisis.
Stagecoach said on Tuesday that shareholders would receive 0.36 new National Express shares for each Stagecoach share they own, giving them about 25 per cent of the combined company.
That would represent a 23.2 per cent premium on Stagecoach’s three month average share price, valuing the Perth-based group at about £442m, although its shares are half the value of what they were pre-pandemic.
Shares in Stagecoach soared 16 per cent to 79.05p on the news, while those of National Express rose 4 per cent to 231.20p in early London trading.
National Express is valued at about £1.5bn, but its shares have also been cut in half by the pandemic, which has hit passenger numbers of both companies hard.
The deal would combine National Express, which owns the UK’s largest coach fleet and has significant international operations, with the operator of more than a quarter of the country’s buses.
Stagecoach founders Sir Brian Souter and his sister Dame Ann Gloag, who started the company in 1980 with two second-hand buses and still own 25 per cent of the group, would be in line to hold about £110m of National Express stock.
They said in April they would reduce their shareholding over the next decade, which some saw as paving the way for a takeover.
Stagecoach chair Ray O’Toole would be chair of the combined group with National Express chief executive Ignacio Garat staying as boss.
The boards of both companies said a deal would be a “strategically compelling proposition with the potential to realise significant growth and cost synergies” such as continuing to expand in the US, combining their routes and cutting the number of depots.
National Express said it had identified £35m of pre-tax cost savings, which would be fully achieved by the third year of any merger, requiring one-off costs of £40m.
Stagecoach, which owns low-cost coach provider Megabus, has 24,000 employees and a fleet of 8,400 vehicles that generated annual revenues of £928m in the year to the start of May.
Analysts say the UK bus and coach industry is ripe for consolidation as the pandemic has ravaged profits and needs to invest heavily in expensive zero emission buses.
The tables have turned since 2009 when Stagecoach attempted an all-share takeover of National Express that the then heavily indebted Birmingham-based group rebuffed.
Gerald Khoo, an analyst at Liberum, said he was “cautious on the merits of the deal” without further details, especially on the challenges of getting it past the competition regulator.
“We envisage some disposals being required to secure Competition and Markets Authority clearance, in particular the overlap in long-distance coach operations,” he said.
National Express has 28 days to decide whether to make a firm offer.
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