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National Express in merger talks with Stagecoach

By Michele Maatouk

Date: Tuesday 21 Sep 2021

National Express in merger talks with Stagecoach

(Sharecast News) - Transport operator National Express confirmed on Tuesday that it is in talks with rival Stagecoach about a possible merger.
Under the terms of the potential combination, Stagecoach shareholders would receive 0.36 new National Express ordinary shares for each of their ordinary shares, resulting in them owning around 25% of the combined group.

"The board of National Express and Stagecoach believe that the potential combination would be a strategically compelling proposition with significant growth and cost synergies, as well as delivering strong value creation for both sets of shareholders," it said.

National Express said it has identified pre-tax cost synergies that are expected to reach a run-rate of at least £35m, with around 25% achieved by the end of the first year, 85% by the end of the second year and full run rate by the end of the third year following completion of the deal.

The company said discussions between the parties and reciprocal customary due diligence remain ongoing and there can be no certainty an offer will be made.

At 0818 BST, Stagecoach shares were up 18.2% at 80.45p while National Express was 7.3% higher at 239.18p.

Russ Mould, investment director at AJ Bell, said: "It's pitched as a merger, but it is clear which party will be in control. National Express is trying to buy Stagecoach, plain and simple. The benefits of parking the two businesses together include operating synergies, economies of scale and a bigger footprint for National Express in growth areas such as private coach hire and corporate transport.

"The starting gun on Stagecoach being a bona fide takeover target was fired in April when founders Sir Brian Souter and his sister Dame Ann Gloag sold just over 2% of the business. This was part of a plan to reduce the family ownership from 27.1% to 5% over the coming decade. In doing so, they have removed a major hurdle for any would-be suitor by declaring their intention to sell down the bulk of their holding.

"While the pair still have a significant stake, their willingness to start selling down should make it easier for National Express to convince them to accept its all-share offer.

"The competition authorities might have something to say about the two public transport operators coming together, but otherwise the deal looks fairly sensible.

"The fact that Stagecoach's board have called it a 'strategically compelling proposition' would also suggest talks are friendly."

Mould said a key factor to consider is whether someone else might fancy owning Stagecoach, such as an overseas transport operator. "It is not an easy feat to build up a large position in the UK public transport market and Stagecoach now has 8,400 buses and coaches.

"There may be some nervousness around using public transport at present due to the lingering pandemic, but long term it seems inevitable that buses will remain a vital part of the UK's transport network.

"Stagecoach has a key position in various parts of the country including places like Manchester where companies continue to expand, thereby pushing up employment and with it demand for commuter services."

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