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A National Express East Coast line train arrives at King's Cross station in London July 1, 2009 file photo.
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LONDON - Bus and rail operator Stagecoach's proposed takeover boosted shares in rival National Express but gains were capped by fears that regulatory hurdles and debt deadlines could scupper a deal. Analysts said a tie-up would make a lot of sense for debt laden National Express and help Stagecoach's earnings but some suggested National Express might instead have to push ahead with a capital hike given pressure on its balance sheet.
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National Express said on Sunday that Stagecoach had made a "highly preliminary" approach, proposing an all-share deal in which National Express shareholders would own no more than 40 percent of the combined group.
The new group would have a market value of about 1.7 billion pounds, based on Friday's closing share prices. (http://graphics.thomsonreuters.com/109/UK_NEXSGC1009.gif )
National Express shares were up 9 percent at 394.1 pence by 2:33 p.m. off a peak of 399.8 pence but still well below levels above 470 pence seen over the last month. Stagecoach was down 0.6 percent at 155.6 pence.
National Express slid over 20 percent on Friday after a consortium led by Spain's Cosmen family walked away from a proposed 765 million pound offer that valued the group at 500 pence per share.
Stagecoach's approach also implied a value of up to 500 pence a share for National Express said analysts at Collins Stewart while Panmure Gordon & Co put the figure at 490p and Arbuthnot Securities at 480p.
"National Express remaining independent looks highly unlikely," Collins Stewart analyst Andrew Fitchie wrote, pointing to its lack of a chief executive, the need to cut a 1 billion pound debt pile and weakness at its U.S. business.
"We would not support an independent National Express. We see scope for substantial value creation for Stagecoach in a bid," he said, raising his rating on both companies to "buy."
Fitchie said he expected a tie-up would boost earnings 5 to 12 percent before cost cuts with scope for savings on UK bus operations and at head office adding another 10 to 20 percent.
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