National Express was at the centre of fresh takeover turmoil last night after rival transport operator First Group walked away from making a formal offer for the troubled rail and bus group and another unnamed bidder appeared on the scene.

There was intense speculation about the identity of the new suitor, understood be a European private equity company.

First Group, which initially approached National Express in June with proposals for an all-share merger of the two businesses, ditched its plans after its target asked the City's Takeover Panel to impose a "put up or shut up" deadline for it to make a formal offer.

Within minutes of Britain's biggest transport firm announcing its withdrawal, National Express disclosed it had received an approach "in connection with a possible offer for the group from another third party whose intentions are not yet known".

National Express, which is in turmoil following the resignation of chief executive Richard Bowker and its decision to walk away from the loss-making £1.4bn east coast rail franchise, said in a statement: "There can be no certainty that this approach will lead to an offer being made for National Express, or as to the terms on which any offer might be made."

Under Takeover Panel rules, First Group is now banned from bidding for six months unless a rival offer emerges. The group, operator of the First Great Western rail franchise and yellow school buses in the US, had wanted to do the deal on friendly terms, but was rebuffed.

National Express said at the time it was concentrating on implementing a number of initiatives to strengthen the business and did not consider it appropriate to enter into merger talks.

A merger of the two groups would have created a business carrying more than 1.4 billion bus passengers and 409 million rail passengers in the UK a year.

Sir Moir Lockhead, the First Group chief executive, said last night: "In making a preliminary approach to the board of National Express, our intention was to enter discussions with a view to seeking a recommended merger that would create a significant British transport group, in a stronger position to compete with state-run companies across Europe. We believe this combination would have offered a highly compelling proposition to both sets of shareholders."

First Group said it had decided it would be "inappropriate" to consider a formal offer "at this time" because of the uncertainty facing National Express, which has been warned that the Department for Transport might strip it of its other franchises, East Anglia and c2c, the London to Tilbury and Southend operation.

But it said it reserved its right to return with an offer in the event of a rival bid being made or if it received the backing of the National Express board.

National Express had refused to enter into discussions with First Group even though it does not have a chief executive after the decision by Bowker to depart for the Middle East, and the controversy over the east coast main line.

National Express had been trying to renegotiate the franchise on the London to Edinburgh route – for which it had paid £1.4bn – and received the approach from First Group just two days before the dramatic move by the Department for Transport.

National Express was warned by the transport secretary, Lord Adonis, that there might be grounds to terminate its two other rail franchises after it refused to continue funding the east coast line.

The cash-strapped firm had been contracted to run the franchise until 2015, but funding is now expected to run out later this year. The problem with the franchise was that National Express had to pay back to the government a total of £1.4bn in premiums over the life of the deal. But passenger growth has stalled in the recession and the company was unable to renegotiate the franchise with the DfT.

Adonis subsequently announced that a new public organisation – East Coast Main Line Company – would operate the line.

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National Express receives second takeover approach

Times Online: July 22, 2009
Ian King, Deputy Business Editor

Troubled bus operator reveals second takeover approach minutes after FirstGroup said it was walking away from a possible bid

Crisis-hit bus and coach operator National Express tonight revealed it has received a second takeover approach - just moments after would-be buyer FirstGroup walked away from a possible bid.

First, Britain’s biggest transport firm and best known for its controversial operation of the First Great Western rail franchise, dropped plans to bid after being handed a ‘put up or shut up’ deadline from the Takeover Panel - which in turn was responding to a request from National Express.

First said that, in view of the uncertainty surrounding the position of National Express, it would be “inappropriate” to consider a formal offer “at this time”.

Sir Moir Lockhead, deputy chairman and chief executive of FirstGroup, stressed that it had always been the company’s intention to pursue a merger — which, on last night’s closing share prices, would have created a business worth a combined £2.135billion — on a friendly basis.

He said: “In making a preliminary approach to the Board of National Express, our intention was to enter discussions with a view to seeking a recommended merger that would create a significant British transport group, in a stronger position to compete with state run companies across Europe.

“We believe this combination would have offered a highly compelling proposition to both sets of shareholders.”

First is now barred from bidding for National Express for another six months unless a rival bid emerges, the target’s board agrees to a deal or if there is a “material change” in circumstances.

Less than an hour after First’s statement, National Express responded, revealing news of a second approach.

Describing First’s proposals as “highly preliminary” and “on unspecified terms”, National Express said: “The board did not consider it appropriate to enter into discussions with FirstGroup.

“The group subsequently received an approach in connection with a possible offer from another third party whose intentions are not yet known. There can be no certainty that this approach will lead to an offer being made for National Express or as to the terms on which any offer might be made.”

National Express, which is currently without a chief executive following former chief Richard Bowker’s decision to take a job in the United Arab Emirates, was rocked last month when the Department for Transport stripped it of the right to run the key East Coast Mainline rail franchise.

The DfT’s move, on July 1, followed a failed attempt by National Express to renegotiate the terms of the franchise and came just two days after First — which operates America’s iconic Greyhound buses — made its approach. Mr Bowker agreed in 2007 to pay £1.4billion to the DfT for the right to operate the franchise for eight years but this has been made financially unviable by the recession.

National Express chief operating officer Ray O’Toole, who has assumed responsibility for the company’s day-to-day running since Mr Bowker’s departure, has since stressed that it should not lose its other rail franchises as a result of losing the East Coast franchise. The company, whose stock market value currently stands at just under £475million, has debts of £1.2billion. Analysts expect a rights issue to help reduce that in due course.

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National Express shares rise on fresh takeover interest

Daily Telegraph: 23 July 2009
By Louise Armitstead and Ben Harrington

National Express shares rose more than 4pc as investors reacted to a fresh takevover approach for the troubled bus and rail operator from a mystery suitor.

After the market close on Wednesday, the company said it had received a second takeover approach just moments after rival FirstGroup dropped its plans for a bid.

Analysts have speculated that the suitor could be fellow UK transport group Stagecoach, as well as European operators - such as SNCF, the French operator, and Deutsche Bahn of Germany - and private equity players.

"I imagine a lot of people are looking at National Express - there are not a lot of assets of that scale around right now," Investec analyst Joe Thomas tells Reuters, referring to the firm's bus operations in the UK, North America and Spain.

Stagecoach shares were flat in early trading, while FirstGroup rose 0.3pc.

FirstGroup said it had decided not to make a formal offer, citing "uncertainties" surrounding its rival's UK rail franchises last night.

An hour later National Express said it had "received an approach in connection with a possible offer for the group from another third party whose intentions are not yet known".

FirstGroup, which runs First Great Western and is also Britain's biggest bus operator, said National Express had sought a "put-up-or-shut-up" ruling by the Takeover Panel.

Sir Moir Lockhead, deputy chairman and chief executive of FirstGroup, said: "In making a preliminary approach to the board of National Express, our intention was to enter discussions with a view to seeking a recommended merger that would create a significant British transport group, in a stronger position to compete with state-run companies across Europe.

"We believe this combination would have offered a highly compelling proposition to both sets of shareholders."

On Wednesday's closing prices, a combination of the two transport companies would have created a business worth £2.14bn.

The removal of FirstGroup's bid interest adds to the pressure on National Express to embark on a rights issue to relieve the burden of its £1.2bn debt pile. Analysts believe National Express, which had a market value of £400m before the approach, needs to raise about £400m from investors.

Three weeks ago FirstGroup made a "very preliminary" all-share offer for National Express. Days later, National Express was rocked when the Government announced plans to nationalise the company's flagship East Coast Mainline rail franchise. The company said it would run out of money to operate the service by the end of the year. Richard Bowker, the company's chief executive, resigned at the same time.

Mr Bowker won the East Coast franchise in 2007. However, by agreeing in the terms of the deal that National Express would pay £1.4bn to the Government for the right to operate the franchise for eight years, he was blamed for putting unmanageable strain on the company's finances.

National Express said it had already sounded out shareholders about a possible rights issue before FirstGroup's approach.

Although the response was said to be tepid at the time, banking sources believe that without the problematic franchise, National Express may need to raise only £250m, which may be more acceptable to shareholders.

FirstGroup is now barred from bidding for National Express for another six months unless a rival bid emerges, the target's board agrees to a deal or if there is a "material change" in circumstances.