Stagecoach abandons talks to acquire London bus assets from FirstGroup

SCOTTISH transport group Stagecoach has walked away from talks with arch‑rival FirstGroup about taking over London bus assets that have been on the auction block for months.

It is understood the two groups could not agree on a price after ScotRail owner FirstGroup invited “expressions of interest” for the assets late last year.

The depots thought to be up for sale are Dagenham, Northumberland Park and Leigh in east London, with Sir Brian Souter’s Stagecoach group understood to be particularly interested in Dagenham.

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That would mesh with Stagecoach’s other bus operations in the area, which include Barking, Bow, Leyton, Romford, West Ham and Catford.

“The two companies’ valuations of the assets were way apart, so it was not a runner,” one source close to the talks said.

FirstGroup admitted in a January trading update that net cash would reach just £100 million to £115m in the financial year to the end of March, compared with a previous forecast of up to £150m due to fewer disposals of non-core assets than planned.

FirstGroup also said at the time that lower multiples were being offered by would-be buyers, and has since said it is in no hurry to sell.

No announcement on a pruning of the London bus operation, which is being handled by Ernst & Young for the company, is expected before the annual results announcement in the spring.

Analysts said Stagecoach may also have been put off by recent public advice from the Competition Commission to the Office of Fair Trading to scrutinise bus deals.

Souter’s group currently has a 15 per cent share of the London market, while FirstGroup is the fifth-biggest player with 13 per cent. The market leaders are Go-Ahead with 21 per cent, and Arriva with 20 per cent.

One industry source said: “I would have thought Stagecoach would have been the front runner for the assets FirstGroup doesn’t want. Souter is certainly not scared of bolt-on acquisitions and Stagecoach has the balance sheet strength to do it.”

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By contrast, it is thought Go-Ahead is constrained in bidding for the FirstGroup assets by hefty debts, while Arriva is now owned by Deutsche Bahn and is seen as being mainly focused on its trains business.

Stagecoach quit its London operations in June 2006, citing pressure on margins from the heavily regulated nature of the market, getting a price of £263.6m from infrastructure developer Macquarie Bank. It bought East London Bus Group in 2010, however, for a much lower £52.8m.

Douglas McNeill, transport analyst at broker Charles Stanley, said: “FirstGroup has made good money in London for many years. But with margins in that market under pressure, and a clear need to get debt down, it might be time to cash in its chips.”

Both FirstGroup and Stagecoach declined to comment.