National Express (NEX) has agreed to take over Stagecoach (SCG) in an all-share deal that is expected to create the UK’s largest road transport provider. But the merger faces regulatory scrutiny from the Competition and Markets Authority (CMA). The deal was first announced in September but the two companies have only now agreed on terms.
Under this arrangement, Stagecoach shareholders will be entitled to receive 0.36 new National Express shares for each Stagecoach share they own, meaning they will be handed around 25 per cent of the combined company upon completion. Based on the groups’ closing share prices on 13 December, National Express is paying an 18 per cent premium on Stagecoach shares, which climbed 9 per cent on the news. National Express shares were up 2 per cent.
The combined group is expected to have a fleet of around 40,000 vehicles, a workforce of 70,000 people, and deliver more than a billion passenger journeys each year. Meanwhile, it is hoped the deal will result in cost savings of at least £45m a year - albeit at a one-off cost of £40m.
Management said the merger should also deliver “strong value creation” for both sets of shareholders, who will have to back the deal for it to go ahead. Stagecoach said it already locked in 25 per cent through co-founders Sir Brian Souter and Dame Ann Gloag, while National Express has lined up irrevocable undertakings covering 12 per cent of the issued shares.
Permission still needs to be granted by the CMA, however, and management warned that the combined group might need to take “remedial action” to obtain approval, including the sale of businesses. Stagecoach has already announced the disposal of Megabus UK and Falcon, along with its inter-city coach retail businesses.
Both National Express and Stagecoach have had a difficult pandemic, and could face further difficulties when government support is removed early next year. In results published last week, Stagecoach reported strong operating profit growth but said demand for its regional bus services will take “some time” to return to pre-pandemic levels. It also noted that recent changes to government Covid guidelines had hit demand, which could further hamper de-leveraging efforts.
