National Express and Stagecoach in talks for all share merger

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

‘’Given that the pandemic blew out the tyres of their business models and it’s been such a slow road back to health ever since, it comes as little surprise that rivals National Express and Stagecoach are now considering getting together to try and shoulder the recovery together. Consolidation in the hard hit travel sector has been expected and it appears the bus coach and rail business is ripe for restructure.

Now that social distancing rules have been eased, there are fewer bumps in the road to stop the acceleration back to full speed, but risks remain. The working from home revolution is still likely to be a drag on revenues going forward, with commuters likely to travel less in the future. Although some pent up demand for travel will have been unleashed, it’s still far from clear when passenger numbers will return to pre-pandemic levels. Given the shortage of HGV drivers in the UK market, there could also be pressures on labour costs, with Stagecoach already facing pressures in recruitment and being forced to cancel services due to a lack of staff.

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 and, if this merger completes, the new group is likely to be hungry to find more opportunities in the rest of the world.

Under the terms of the potential all share merger, Stagecoach shareholders would receive 0.36 new National Express shares for each Stagecoach share, giving them a 25% stake in the larger group. But it’s not a done deal yet, with due diligence to be carried out and the finer terms of the proposal yet to be agreed. It’s received a shareholder vote of approval so far with Stagecoach shares up around 16% and National Express shares up around 4% in early trade.”