Business

Stagecoach deal hits a bump as competition authority steps in

Plans to merge Stagecoach operations with those of larger travel rival National Express have hit a detour after the UK’s competition watchdog said it is launching an investigation into the deal.

The Competition and Markets Authority (CMA) has thrown the brakes on the disposal of key assets by either party as it starts its probe into the £1.9 billion tie-up. In its initial enforcement order (IEO) the CMA said there were “reasonable grounds” to suspect that without a decree the two operations would “cease to be distinct”, therefore reducing competition in the sector.

It means Perth-based Stagecoach will have to delay the £9 million sale of inter-city coach businesses Megabus and South West Falcon to Singapore’s ComfortDelGro. That deal was announced in December in conjunction with confirmation that Stagecoach and National Express had agreed terms on their all-share tie-up.

Although the disposal to ComfortDelGro will be pushed back from the originally anticipated completion date of February 28, Stagecoach and National Express said they still expect to finish their merger by the end of this year.

HeraldScotland: Martin GriffithsMartin Griffiths

“The boards of National Express and Stagecoach continue to believe the [disposal to ComfortDelGro] represents a comprehensive solution to any competition concerns that might arise from their overlapping coach operations and will engage with the CMA to allow the Stagecoach coach disposal to complete as soon as possible,” the pair said in a statement.

They added that they do not expect the IEO to “materially affect” day-to-day operations of either business, both of which are recovering from the severe blow to passenger numbers brought by lockdown measures during the pandemic.

Founded in 1980 by Sir Brian Souter and his sister Dame Ann Gloag, Stagecoach is the UK’s biggest coach and bus operator. National Express has networks across the UK and Spain, runs school bus services in the US, and a rail franchise in Germany.

Under the terms of the deal, Stagecoach shareholders will receive 0.36 new ordinary shares in National Express for each ordinary Stagecoach share, giving them about 25 per cent of the combined group. The agreement values Stagecoach at approximately £445m.

READ MORE: Scott Wright: Stagecoach sale is a further blow to Scottish prestige

Stagecoach chairman Ray O’Toole will become chairman of the combined business, which will have a fleet of some 40,000 vehicles and a workforce of 70,000 staff. No frontline job losses or depot closures are anticipated because of the deal.

However, about 50 head office, IT and corporate roles are to be cut under plans to reduce annual costs by at least £45m following the merger.

Stagecoach chief executive Martin Griffiths will make way for his National Express counterpart Ignacio Garat following a handover period running through the first quarter of 2023. Ross Paterson, finance director at Stagecoach, is also expected to leave his post after the merger is completed.

Shares in both companies surged in September when they first confirmed they were in talks after the brutal months of Covid left them and other transport operators reliant on hundreds of millions of pounds of government grants to stay afloat.

READ MORE: Stagecoach chief Martin Griffiths to leave after takeover

Posting its interim results at the end of last year, Stagecoach said passenger journeys and commercial sales had recovered to more than 70% and 80% respectively of equivalent pre-pandemic levels during most of November. However, there had been some softening caused by travel disruption from Storm Arwen and changing government guidance on Covid safety measures.

Speaking at that time, Mr Griffiths said the company was pleased with its progress as customer confidence led to increasing use of its services: “While the pace of the recovery may vary, we are well-placed to deliver on the extensive opportunities beyond the pandemic and on the back of the COP26 climate change conference to attract people out of cars to more sustainable public transport.”

He added: “We continue to see a positive outlook for our bus, coach and tram services, whether as a standalone business or as part of a combined future group. Greener and smarter public transport is central to delivering government ambitions around decarbonisation, levelling up of communities, driving economic recovery, and securing better health outcomes for citizens.”

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