National Express in talks to buy transport rival Stagecoach

National Express has confirmed it is in talks to buy rival transport firm Stagecoach.

Under the terms of the potential deal, National Express would own about 75% of the combined group and Stagecoach 25%.

National Express said it would be able to slash costs as a result of the merger, and expected the newly formed group to find savings of at least £35m.

Travel restrictions and fewer commuters travelling to work have dented passenger numbers during the pandemic.

National Express, which runs bus and coach services across the UK, Spain, and the United States, saw revenues fall to £990m in the six months ending 30 June 2021, down from £1.03bn the previous year.

Stagecoach, Britain's biggest bus operator, also saw sales fall in the year to 1 May, dropping to £928m from £1.4bn in 2020 due to the "adverse effect of the Covid-19 situation".

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In a statement on Tuesday, both firms said the potential merger would bring "the best of both" businesses.

If talks are successful, Stagecoach chairman Ray O'Toole would become chairman of the board, while National Express chief executive Ignacio Garat would become chief executive of the newly-formed group.

The companies said the deal would also allow National Express to use Stagecoach's UK network of depots for its coaches, as well as expanding other areas of its business such as private coach hire, corporate shuttles and accessible forms of transport.

They highlighted a number of areas where they hoped to cut costs, such as teaming up on repairing and maintaining vehicles, combining some schedules and routes and the potential sale of office space.

Stagecoach previously warned investors that passenger numbers may not fully return for years

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the move was of "little surprise".

"Consolidation in the hard hit travel sector has been expected and it appears the bus, coach and rail business is ripe for restructure.

"Keeping a tight rein on expenditure is likely to stay a priority so any savings which can be carved out of this merger are clearly attractive. National Express had already had its eye on continued overseas expansion, with its US school bus operation proving resilient, and new bus services being rolled out in Morocco."

The new potential group is likely to be hungry to find more similar opportunities in the rest of the world, she added.

National Express did acknowledge that the merger would see one-off costs of up to £40m in the first two years after the deal, if it was approved.

The firm, which also runs rail operations in Germany, said that the all-share tie-up would, however, allow the new group to save "at least" £35m annually, with about 25% by the end of the first year.

Both companies stressed that the talks were still ongoing and that "there can be no certainty that an offer will be made".

National Express has until 19 October to make a firm offer.