The UK’s biggest transport firm, FirstGroup, said yesterday that struggling rival National Express had snubbed an approach over a possible takeover.
Aberdeen-based FirstGroup said there was a significant industrial and commercial logic in a combination of the two companies.
National Express is burdened with debts of £1.2billion and attempting to renegotiate the onerous terms of its east coast rail franchise with the Department for Transport (DfT).
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 FirstGroup's position as the UK's largest operator, although any deal is likely to attract the attention of competition authorities.
FirstGroup – whose chief executive is Sir Moir Lockhead – 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 train network.
It has four rail franchises – First Capital Connect, First Great Western, First ScotRail and First TransPennine Express – and operates Hull Trains services under an open-access agreement.
NatEx, which operates buses in the West Midlands and Dundee, has three rail deals: the East Coast and East Anglia franchises plus the c2c London commuter service.
The group agreed to pay £1.4billion to the DfT over the life of the East Coast deal, which was agreed 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.
NatEx is “reviewing a range of options” over its finances and could elect to call on shareholders for cash in a £400million rights issue.
It gained extra breathing space recently from tougher lending terms on its debts, but an agreement on the East Coast rail franchise is seen as critical.
The firm will update on trading tomorrow.
Shares in National Express rose 10% to 302.75p following confirmation of the rejected approach. FirstGroup retreated 4.75p to end the day at 366p.
Panmure Gordon analyst James Cooke said that FirstGroup’s approach had been clearly opportunistic.
He said: “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.”
NatEx has a market capitalisation of about £417million while FirstGroup’s market capitalisation is nearly £1.8billion.