National Express may face hostile bid from FirstGroup

FirstGroup, best-known for operating FirstGreatWestern out of Paddington, today admitted it made a takeover approach to beleaguered National Express 10 days ago.

"This preliminary approach envisaged a merger to maximise the potential of the two companies," said FirstGroup after reports forced it to make a statement to the Stock Exchange.

"The board of FirstGroup continues to believe that there is significant industrial and commercial logic in a combination of the two companies."

In its own statement National Express dismissed the approach as "highly preliminary" and "on unspecified terms", adding: "The group does not consider it appropriate to enter into discussions with FirstGroup."

Even if as indicated, the deal would be through an all-share offer, the City is doubtful whether FirstGroup could pull it off without a massive fundraising. The enlarged company would have a massive debt pile of £3.7 billion — £2.5 billion of that coming from the FirstGroup side.

Any deal between FirstGroup and National Express would create a UK passenger transport powerhouse — running trains, buses and coaches — but would be sure to run into competition issues.

The enlarged group would have control of nearly half the commuter lines into London, running trains into and out of Paddington, King's Cross, Liverpool Street and Fenchurch Street as well as the north-south cross-capital Thameslink services.

However, indications from National Express supporters that a merger with FirstGroup is "the wrong deal" led to speculation that National Express may yet seek to merge with a rival such as Go-Ahead, Arriva or Stagecoach or fall to one of the big European players — Germany's Deutsche Bahn or NedRail of the Netherlands — stalking the sector.

National Express shares which have fallen 75% in the last year were 13½p better today at 289p.

At issue is the crisis at National Express.
Around £1.2 billion in debt it has only saved itself from breaching its banking covenants by renegotiating terms with its lenders and even after that many believe it needs to launch a £500 million rights issue.

National Express is locked in negotiations with the Department for Transport over the terms of its franchise to run the East Coast Main Line.

Transport minister Lord Adonis has warned if National Express walks away from the East Coast Main Line he could strip the company of its Liverpool Street and Fenchurch Street franchises.