National Express drama takes a new twist

Rhian Nicholson
30.10.09 11:09

The National Express (NEX) drama stepped up a gear today after its largest shareholder voiced "serious concerns" about the lack of strategy at the firm.

The Cosman family, which own an 18.5% stake in the debt-laden transport group, drew particular attention to worries that National Express had not properly weighed up Stagecoach's merger proposal.

This was an "an option that could have addressed the fundamental financial and strategic issues facing the company," the Spanish shareholder said.

"We have serious concerns about the absence of a well-defined strategy to address the company's broader and longer-term issues," it added.

Analyst Andrew Fitchie of Collins Stewart says: "The most telling element in today's the statement is the call for independent advice.

"Clearly the Cosmens are not convinced all parties are acting in the best interest of shareholders. Cynically, one could argue that the company's brokers and advisors would be best served by generating fees through an equity raise.

"And the executives will keep their jobs if they pursue an independent future ... turkeys don't vote for Christmas!"

National Express pulled the plug on talks with Stagecoach (SGC) over a �1.65 billion merger on Thursday.

The East Coast Mainline operator said it did not believe that the tie-up could be "successfully executed" this year "even if appropriate terms could be agreed."

The board had concerns over that regulators could delay or block the deal due to competition concerns. Any forced sale of assets would have defied the point of the merger while delays beyond Christmas could have led to National Express missing payment of a �5 million penalty fee on its �1.2 billion debt.

Stagecoach said it was "extremely disappointed" with the decision. It maintained that it was "confident that such a transaction was deliverable in terms of any potential competition issues and had in place a clear plan with identified remedies.

Earlier this month, it made a preliminary approach for an all-share deal which would have given its shareholders around a 60% share of the enlarged company.

National Express now intends to steam ahead with plans for a rights issue of up to �400 million.

Fitchie is not convinced that a cash call is feasible. "It was always going to be a tough one - �300-400 million to be raised against a market cap of �482 million. At the very least, the Cosmen's issues need to be addressed and this will take time," he said.

"We can't understand why the National Express board dismissed the stagecoach proposal; it would have made sense to run a dual-track process," he concluded.

National Express shares were up 3.5% to 332p.

National Express drama takes a new twist

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