National Express reject FirstGroup takeover attempt

Published on Monday 29 June 2009 10:14

THE UK's biggest transport firm, FirstGroup, said today that struggling rival National Express had snubbed an approach over a possible takeover.

Aberdeen-based First said there was a "significant industrial and commercial logic" in a combination of the two companies.

National Express is burdened with debts of 1.2 billion and attempting to renegotiate the onerous terms of its East Coast rail franchise with the Department for Transport.

The firm said it did not consider it appropriate to enter talks with its larger suitor "at present".

A potential combination of the two firms would consolidate First's position as the UK's largest operator, although any deal is likely to attract the attention of competition authorities.

First is already the UK's biggest bus operator, running more than one in five of all local buses, and a quarter of the UK's passenger rail network.

It has four rail franchises – First Capital Connect, First Great Western, First ScotRail and First TransPennine Express – as well as operating Hull Trains services under an open access agreement.

National Express, which operates buses in the West Midlands and Dundee, has three rail deals – the East Coast and East Anglia franchises as well as the c2c London commuter service.

The group agreed to pay 1.4 billion to the DfT over the life of the East Coast deal – struck before the recession.

But revenue growth on the franchise has since stalled, edging up by just 0.3% in the first three months of the year.

National Express is "reviewing a range of options" over its finances and could elect to call on shareholders for cash in a 400 million rights issue.

It recently gained extra breathing space from tougher lending terms on its debts, but an agreement on East Coast – for services from London to Edinburgh – is seen as critical. The firm will update on trading on Wednesday.

Shares in National Express rose almost 7% following confirmation of the rejected approach.

Panmure Gordon analyst James Cooke said First's approach was "clearly opportunistic".

"With the exception of rail, National Express's assets are quite attractive, although there may be some competition issues in North America and possibly the UK.

"If National Express remains independent, in our view it will need to raise a significant amount of new equity," he said.