Fresh doubts as rail takeover collapses

THE future ownership of East Anglia's biggest passenger train operator remains shrouded in uncertainty following the collapse of a proposed �765million takeover of the National Express Group.

A consortium including the Spanish Cosmen family - the biggest shareholder in National Express - and buy-out specialist CVC has been in talks since July over a possible bid for the group, which includes regional train operator National Express East Anglian and south Essex commuter route c2c.

But today, National Express announced that the consortium had decided against making an offer, with the news sending the group's shares plunging in value by a third, or nearly �250million.

Heavily indebted National Express insisted that it believed it had a “strong future” as an independent company and - with the backing of the Cosmen family - now planned to press ahead with plans to restore its finances through an issue of new shares.

This puts it on a potential collision course with the Government which has threated to strip the group of the East Anglia and c2c franchises in response to National Express's decision to walk away from its loss-making East Coast franchise which it plans to hand back to state control by the end of the year.

The consortium had planned to sell-on National Express's UK rail and bus businesses to rival operator Stagecoach, and the Department for Transport is understood to have indicated its agreement to the change in ownership.

However, Stagecoach has always been reluctant to make a full takeover offer of its own for National Express and indicated today that this remained its position.

Stagecoach said it “noted” the announcement that the consortium no longer intended to make an offer for National Express, and added: “Accordingly, Stagecoach confirms that it is no longer in discussion with the consortium regarding the possible acquisition by Stagecoach from the consortium of the UK bus and UK rail operations of National Express.”

Under City rules on takeovers, the consortium cannot now table a bid for the group for another six months without either the agreement of the National Express board or a new offer being made by a third party.

FirstGroup, the UK's biggest public transport operator, briefly considered an all-share merger with National Express but withdrew in July.

The National Express board said today: “The group has a strong portfolio of businesses and continues to perform resiliently despite challenging trading conditions. The board believes that National Express has a strong future as an independent listed company, offering a compelling investment case building on the strength of its individual businesses.

“As previously announced, the board believes that strengthening the group's balance sheet through an equity fundraising is now the most appropriate course of action and is a key objective in order to unlock the inherent value of the group for all shareholders. This will provide the group with a strong, stable platform to deliver sustainable and profitable growth.”

National Express added: “The Cosmen family has now confirmed its intention to support the group's plans to undertake an equity fundraising within certain parameters that the Cosmen family has communicated to the board of National Express.

“The board is consulting with its major shareholders and a further announcement in connection with the potential equity fundraising will be made as and when appropriate.”

It is thought that National Express, which has debts of around �1billion, could seek to raise around �400 million in equity finance to strengthen its balance sheet.

The group acquired the East Coast rail franchise at the peak of the economic boom, with the deal due to run until 2015. However, the fall in revenues since the onset of the recession, combined with premium payments due to the Government under the terms of the deal, has plunged the franchise into the red, with a loss of more than �20 million in the first half of this year alone.

An attempt by the group to renegotiate the terms of the deal was rebuffed by the Government earlier this year.

National Express then announced that it would provide no additional financial support to the East Coast operation beyond that already committed under the terms of the franchise, which is expected to run out by the end of this year.

The group's decision to pursue an independent future following the end of the takeover talks now leaves the Government facing a decision on whether to go ahead with its threat to strip National Express of its remaining rail operations.