Stagecoach joined the bidding fray for National Express this morning as it confirmed it is in talks to join a Spanish-led consortium stalking the public transport group.

The Perth-based bus, rail and coach group has opened discussions with private equity firm CVC and the Cosmen family, the largest shareholder in National Express, about acquiring some of the group's businesses in the event of a successful takeover offer.

"Stagecoach confirms that it is in exclusive discussions with the consortium regarding the possible acquisition by Stagecoach of certain businesses and assets of National Express in the event that the consortium acquires National Express," said the company. It is believed Stagecoach is interested in the UK rail, bus and coach operations of National Express, although it could combine both companies' US bus operations as well.

The National Express board will have to consider the cash offer from the Cosmen consortium today. However, it is understood that the National Express executive chairman, John Devaney, is minded to concentrate on restoring the debt-laden group's financial health rather than accept a bid to take it private. If the board agrees with his argument, the offer could be rejected as soon as today, although investors may put pressure on directors to accept a proposal that reportedly values National Express at 400p a share – or just over £600m.

Stagecoach added that it will consider "all other options" regarding National Express, having appointed Deutsche Bank to advise on a potential all-share offer for the group.

National Express has become a takeover target after building up debts of £1.2bn that are threatening to breach loan covenants. A row with the government over its £1.4bn east coast rail franchise, which it expects to abandon later this year, has also weakened its hand strategically after the transport secretary, Lord Adonis, pledged to bar National Express from bidding for rail contracts in the future. Devaney has also launched the process to recruit a new boss following the surprise resignation of Richard Bowker, National Express chief executive, on the eve of the announcement that the group is stepping away from its east coast contract.

Some analysts argue that the east coast row could make the group a more attractive takeover target because without the onerous London-to-Edinburgh contract the business generates strong profits. According to research by Astaire Securities, National Express will generate cash flow of around £150m a year if it loses its rail franchises. Lord Adonis is determined to strip National Express of its c2c and National Express East Anglia contracts if it abandons east coast. National Express wants to retain its remaining contracts, which produce healthy profits, and is willing to take the dispute to the high court. The dispute is expected to loom over any takeover battle for the group, whose shares rose 4.7% to 362p this morning, valuing National Express at £529m.

See also:

Stagecoach hedges bets in National Express bid

Times Online: July 27, 2009
David Robertson

Stagecoach said today that it was in talks to buy parts of National Express but is also considering a full £600 million bid for the struggling bus and trains group.

In a statement, Stagecoach confirmed that it was in exclusive negotiations with a consortium consisting of CVC Partners, a private equity group, and the Cosmen family of Spain, National Express’s largest shareholder, to buy some of its rival’s assets.

CVC and the Cosmen, which own 18.5 per cent of National Express, said last week that they planned to make a bid for the company, which was stripped of the prestigious East Coast Mainline railway franchise last month.

However, Stagecoach also wants to keep the option of making a full bid for National Express open.

“In addition to its discussions with the consortium, Stagecoach will continue to consider all other options in relation to National Express,” the company said today.

Brian Souter, Stagecoach’s chief executive and founder, is thought to have been working on a bid for National Express for several weeks and has appointed Deutsche Bank as adviser.

National Express said last month that it would not be able to pay the Government the £1.4 billion it agreed to run the East Coast Mainline. The line has effectively been nationalised and the government has warned that it may strip National Express of its other rail franchises.

Meanwhile, Richard Bowker, the chief executive, has stepped down to take a job in the Middle East.

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National Express to reject bid

Financial Times: July 27 2009
By Robert Wright, Transport Correspondent

National Express is set to reject a takeover bid from Spain's Cosmen family and CVC, the private equity group, rebuffing an approach that was expected to value the group at more than £500m.

The company would reject the offer early this week, a person familiar with the situation told the Financial Times yesterday.

National Express will argue at its interim results on Thursday that its plans for an independent future, which centre on cutting costs and paying down debt, offer better value than either of the preliminary approaches it has received.

Last week, FirstGroup, the bus and train operator, said it was walking away from early stage talks about a merger with National Express, which then said it had received a preliminary approach from another party, later revealed as the CVC consortium .

The Cosmen family is National Express's largest single shareholder, with an 18.5 per cent holding, and Jorge Cosmen is its deputy chairman. The consortium had been expected to bid £500m, about 325p per share, for National Express. But the board has signalled it is unwilling to consider bids lower than about 400p, an equity value of almost £620m. The shares rose 21¾p on Friday to 345¾p after CVC confirmed its interest.

National Express is expected to argue against a sale soon, citing the effect of the recession on valuations of its business, which includes buses and coaches in the UK and Spain, train operations in the UK and school buses in North America.

But the company needs to refinance hundreds of millions of pounds of the £1.2bn debt it acquired in part through acquisitions including the Alsa bus business previously owned by the Cosmens and Continental Auto, a Spanish coach operator.

Bid interest in National Express has grown this month since it had to announce it would offer no further support to its loss-making East Coast rail franchise. The government is to take over the franchise when funds run out.

Stagecoach Group and Go-Ahead, two of the five companies that dominate the UK bus and rail industries, have been considering potential offers for the group and Stagecoach has appointed banking advisers. Neither has approached National Express about any offer. Stagecoach and Go-Ahead have declined to comment on the likelihood of a bid.