Train operator rejects takeover approach

THE parent company of regional train operator National Express East Anglia has rejected a takeover approach.

THE parent company of regional train operator National Express East Anglia has rejected a takeover approach.

National Express Group, which also owns the National Express East Coast and c2c rail franchises as well as the National Express long-distance coach service network, said it did not consider it appropriate to enter into talks with its larger rival FirstGroup “at present”.

FirstGroup is reported to have made the approach following a rejection by the Department for Transport of attempts by National Express to renegotiate the terms of the East Coast franchise.

The current deal, which National Express won ahead of strong competition two years ago, involves the company making payments to the Government of nearly �2billion over eight years.

However, the impact of the recession on travel has left National Express struggling to generate sufficient revenue to cover the payments.

Reports last week claimed that the company was close to a deal with the DfT to replace the present franchise with a management contract, under which National Express would continue to operate the London-Edinburgh route in return for a set fee. However, the talks broke down without agreement.

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With National Express currently seeking to raise �400million through a rights issue of new shares to reduce its �1.2billion debts burden, having already negotiated new terms with its banks, rival FirstGroup saw an opportunity and made a private approach

FirstGroup is understood to have claimed “significant industrial and commercial logic” for a combination of the two companies which would create a company with a stock market value of more than �2billion and combined turnover of about �9billion.

However, even were National Express to agree to a deal, there would be substantial regulatory hurdles to overcome with FirstGroup's own rail operation including the Great Western, ScotRail, TransPennine Express and First Capital Connect franchises.

However, given that the new generation of franchises has created a single operator out of most London termini, as well as being far more prescriptive in terms of timetables and rolling stock, operators could argue that normal competition rules are no longer relevant.