National Express plan hits buffers

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First said the decision by National Express earlier this month to walk away from its loss-making East Coast rail franchise and subsequent Department for Transport (DfT) comments on the future of its other train deals had created "considerable uncertainty" around the business.

In a statement the firm said: "The board of FirstGroup has considered its position in light of these uncertainties and now believes it would be inappropriate to consider a formal offer at this time."

Aberdeen-based First said it had been given a "put up or shut up" deadline from its rival on the merger proposals.

National Express rejected First's preliminary offer for an all share merger last month.

First's deputy chairman and chief executive Sir Moir Lockhead 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 said it had hoped the merger would have been on a "friendly and recommended basis", to get the maximum benefit for shareholders.

But it said National Express's statement that it intended to default on its franchise for the London to Scotland rail route "and the subsequent Department of Transport statement regarding the future of the company's UK rail franchises have created considerable uncertainty around the National Express business and the strategic benefits of a combination for FirstGroup".

National Express was warned by Transport Secretary Lord Adonis that there might be grounds to terminate its two other rail franchises - East Anglia and the London to Tilbury and Southend operation c2c - 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.