Lord Adonis holds key to National Express takeover
Guardian: 23 July 2009
Dan Milmo and Andrew Clark
Any bidder for group will need transport secretary's approval if it wants to buy its rail franchises
Lord Andrew Adonis at Ashford International station, Kent. Photograph: Martin Godwin
The transport secretary, Lord Adonis, could play a role in a takeover of National Express after it emerged that the government must sanction bids for the public transport group's franchises.
Any suitor for National Express needs Adonis's consent if it wants to buy the group's rail businesses.
According to Department for Transport guidelines, a franchise agreement will be in default if there is a change in the identity of the person who "controls" the company.
The new owner must submit "plans to honour franchise obligations" including proposals for "the long-term future of the franchise". A key factor in National Express becoming a takeover target is its onerous £1.4bn east coast franchise, which it expects to hand back to the DfT later this year.
If the transport secretary is concerned that the new owner will trigger a repeat of the east coast fiasco by reneging on the group's remaining franchises, those contracts could be declared in default and taken over by the government.
Shares in National Express rose 4.4% to 324p today, valuing the group at £475m, after it revealed yesterday that it had received its second approach in just over a month.
The Financial Times reported last night that the Cosmen family, wealthy Spaniards who own about 18.5% of National Express, had joined up with CVC, a private equity group, to make a joint takeover bid.
The suitor entered the fray hours after FirstGroup, a rival public transport operator, said it would not bid.
A source close to National Express said employees were becoming worried and disillusioned about its future – and that the Cosmen family were crucial players: "A lot will depend on the Cosmens. They can obviously control what the destiny of the company is."
The Cosmens are understood to be very reluctant to see any dilution of their stake in National Express, whose assets include coach operations in the UK and Spain and a highly rated UK bus business.
The attraction of National Express to a private equity buyer was underlined last week by Astaire Securities, which estimated the group would generate £150m next year, even without any rail earnings.
National Express expects to hand back Britain's largest rail contract this year but is determined to hang on to its remaining rail businesses, the profitable National Express East Anglia and c2c franchises.
However, Adonis is determined to enforce cross-default clauses that would allow the DfT to kick National Express out of the rail business altogether in the event of a default on the east coast line.
Analysts have warned that a new National Express owner faces problems, including a potential ban from bidding for rail contracts, if it takes over the business without resolving the east coast problems.