Stagecoach Takeover Discussion

[InOban]

I would assume that the money used to buy Stagecoach will be borrowed from a financial company within DWS, based in a jurisdiction where interest earnings are untaxed (I think that this includes the Netherlands, may be wrong ). Thus there will be no profits to tax in the UK. Just as paying income tax in the UK is optional if you are wealthy enough, so Corporation tax is optional if you are a multinational .

 

[RELL6L]

I would assume that the money used to buy Stagecoach will be borrowed from a financial company within DWS, based in a jurisdiction where interest earnings are untaxed (I think that this includes the Netherlands, may be wrong ). Thus there will be no profits to tax in the UK. Just as paying income tax in the UK is optional if you are wealthy enough, so Corporation tax is optional if you are a multinational .

Not quite so easy these days - there is a limit for large groups on how much interest (payable to anyone, internal or external, UK or overseas) can be deducted from profits in calculating corporation tax.

 

[PG]

Not quite so easy these days

Hmmm, according to many sections of the media, Amazon seem to pay remarkably little corporation tax...

 

[RELL6L]

Hmmm, according to many sections of the media, Amazon seem to pay remarkably little corporation tax...

Ah but that comes down to the question of where income arises. Not much argument with a bus company- but drifting somewhat off topic!

 

[GusB]

but drifting somewhat off topic!

Indeed. This is a very extensive rabbit warren that we really do not wish to disappear down! Please stay on topic, folks

 

[317 forever]

I doubt there will be much change to vehicle choice in the short-term. DWS would probably just let existing bus managers continue with their jobs and decisions as usual.

Maybe a few operators will approach DWS hoping to buy parts of Stagecoach Bus that they see as a good fit or promising territory. This could provide expansions for Go-Ahead or Transdev for example, and even Comfort DelGro if they are still interested in Megabus & the remaining 35% stake in Scottish Citylink.

 

[tbtc]

I remember seeing an article twenty years ago about how Connex were used to taking over "flabby" organisations and whipping them into shape, trimming the fat, making a decent profit as a result...

...but they'd taken over the South Central and South Eastern rail franchises and then realised that BR had been running these on a shoe string in the first place, so there was essentially not "fat" to cut

I wonder if the same will happen here, and the Disaster Capitalists get a nasty shock when they find that Stagecoach had squeezed anything that they could and there's not going to be any easy way to get much more out of it?

That said, I can see the argument that a bus company could be a fairly stable revenue generator (to sit alongside the other "public services" that they own) - I just wish that I could share their optimism in the medium/long term health of the bus industry! But, in light of this, I guess I should be happy that the money men are seeing a big bus company as a good bet and that they want a slice of the industry - I suppose it's better than a situation where nobody wanted to touch a big player like Stagecoach other than existing bus companies (because the market was in such a bad way)

I wonder now about the sale of Falcon etc, which seems unnecessary if there's no National Express merger - seems a big disbenefit for passengers without any reason now

 

[Volvodart]

"The National Express Board believes the Combination provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and the compelling growth and value creation potential of the Combined Group, representing a superior value creation opportunity when compared to the DWS Offer.

The Board of National Express therefore encourages Stagecoach shareholders to take no action in relation to the DWS Offer. Further announcements by National Express will be made as and when appropriate"


https://otp.tools.investis.com/clie.../regulatory-story.aspx?cid=273&newsid=1561307

National Express Board believes the Combination with Stagecoach
Represents a Superior Value Creation Opportunity When Compared to the DWS Offer



The National Express Board believes the Combination with Stagecoach:

· Builds on a leading and globally diversified public transport champion, unlocking an illustrative look-through value of up to approximately 170 pence per Stagecoach share1

· Delivers significant synergies unique to the Combination which, when illustratively valued at an estimated pre-pandemic National Express trading multiple of 12.2x EV/EBIT2, represents 63 pence per National Express share and 23 pence per Stagecoach share3

· Provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and, in particular, the compelling benefits of the all-share Combination with National Express

· Represents a superior value creation opportunity when compared to the DWS Offer, which the National Express Board believes materially undervalues Stagecoach

The Board of National Express Group PLC ("National Express") sets out below its considered response to the announcement by Inframobility UK Bidco Limited ("DWS") on 9 March 2022 of its all-cash offer (the "DWS Offer") for Stagecoach Group PLC ("Stagecoach") of 105 pence per Stagecoach share. The Board of National Express will remain disciplined in its assessment of its options going forward.

Appendix 1 to this announcement contains the sources and bases of certain information contained in this announcement with the end notes in the text of this announcement corresponding to paragraph references in Appendix 1.



COMBINATION WITH NATIONAL EXPRESS IS A COMPELLING OPPORTUNITY FOR ALL SHAREHOLDERS

The National Express Board believes the Combination with Stagecoach will:

(i) Creates a leading multi-modal transportation provider in the UK;

(ii) Deliver significant synergies unique to this Combination; and

(iii) Accelerate National Express' Evolve strategy in increasingly attractive global markets.



(i) Creates a Leading Multi-modal Transportation Provider in the UK

The National Express Board believes the Combination with Stagecoach provides a compelling strategic opportunity to:

- further build scale and relevance in an increasingly 'bus-friendly' UK market, supported by the National Bus Strategy for England as well as similar measures in Scotland and Wales;

- expand across the UK's large urban areas, whilst continuing to enhance strong relationships with key public sector stakeholders and city partners who are aligned on the need for modal shift;

- implement industry-leading environmental and sustainability solutions at scale to deliver high quality, zero-emission public transport, driving customer demand and playing a critical role in delivering government priorities for cleaner, greener and more resilient economies;

- bring the 'best of both' from the combined capabilities of two high quality operators with well-aligned values and collaborative cultures, whilst also delivering significant benefits to customers and passengers, across key aspects of the business including on-board technology and safety; scheduling, network and route planning; and congestion management;

- deliver significant operational efficiencies across the combined UK networks, with, for example, National Express Coach utilising Stagecoach's well-located depot network to run and maintain its coach operations; and

- facilitate an acceleration of the expansion of National Express's growth businesses across the UK, such as commuter, shuttle, private hire coach and accessible transport, across Stagecoach's footprint, as well as deliver other growth and revenue synergies.

In addition, the National Express Board believes the Combination creates an exciting partnership with Stagecoach with:

- a balanced Board and management team, including Ray O'Toole who is expected to become Chairman of the Board of the Combined Group; Gregor Alexander and Lynne Weedall who are expected to join the Combined Board; and Carla Stockton-Jones of Stagecoach who is expected to become Managing Director of UK Bus, with Tom Stables as CEO of UK and Germany;

- an intention to continue using the National Express and Stagecoach brands; and

- an expectation that the Combination will not result in any job losses in front-line operational roles or depot closures given the minimal direct operational overlap of the two businesses.

In a period that has seen a surge of private equity firms acquiring British companies, the Combination represents a rare example of two UK listed companies combining to form a global leader in their industry.



(ii) Deliver Significant Synergies Unique to this Combination

The National Express Board expects that the Combined Group will be able to realise significant run-rate annual pre-tax cost synergies of at least £45 million as a result of the Combination. When illustratively valued at an estimated pre-pandemic National Express trading multiple of 12.2x (NTM EV/EBIT as at 31 December 2019)2, these synergies would unlock value of over £500 million, representing:

- 23 pence per Stagecoach share3; and

- 63 pence per National Express share3.

Further information in relation to the above synergy estimate, including the bases of belief, the principal assumptions and sources of information, is set out in Appendix 2 to this Announcement.

In addition, National Express is confident of the Combined Group realising significant growth and revenue synergies that cannot be quantified for reporting under the Takeover Code at this time.



(iii) Accelerate National Express' Evolve Strategy in Increasingly Attractive Global Markets

In 2021 National Express launched its Evolve Strategy with a clear vision and purpose, to be the world's premier shared mobility operator, leading modal shift from cars to public transport, and with services offering leading safety, reliability and environment standards that customers trust and value.

Through this, National Express has a compelling investment case, with a differentiated position in the sector driven by:

- a uniquely diversified and balanced international portfolio;

- leading positions and high market share in attractive and growing international markets; and

- significant opportunities to compound growth through organic and inorganic expansion and multi-modal in-market consolidation.

National Express is also at the forefront of favourable industry dynamics with mobility restrictions almost fully lifted across its global markets and with strong sequential growth in passenger numbers expected to continue across all business lines over the coming months.

Looking further ahead, and as set out at its recent Capital Markets Day, the National Express Board has full conviction in the Evolve strategy and its stand-alone targets4 of:

- at least £1 billion of revenue growth from 2022 to 2027;

- at least £100 million of profit growth from 2022 to 2027, with an operating profit margin averaging around 9% over the coming years; and

- at least £1.25 billion of free cash between 2022 and 2027 inclusive, with average cash conversion over 80%.

In addition to National Express' attractive stand-alone prospects, the Board of National Express believes the Combination with Stagecoach provides a compelling opportunity to be a strategic accelerator for the Combined Group, targeting4:

- an additional £500 million of additional growth investment capacity in an attractive and diversified £1.5 billion global pipeline of opportunities, in particular, in National Express's North American and ALSA businesses;

- at least £1.5 billion of revenue growth from 2022 to 2027;

- at least £200 million of EBIT growth from 2022 to 2027, including significant growth and cost synergies; and

- a strong balance sheet, enhanced cash flow and capacity for an attractive and growing dividend.

The Combination provides Stagecoach shareholders with the opportunity to participate fully in this global opportunity.



SIGNIFICANT VALUE CREATION OPPORTUNITY FOR BOTH SETS OF SHAREHOLDERS

The following look-through values per Stagecoach share and premia to the DWS Offer are illustrative based on the agreed Combination exchange ratio of 0.36x and taking into account synergies illustratively valued on the basis set out in section (ii) of this announcement.

The current National Express share price (as at the close of business on 16 March 2022) of 232 pence already implies an illustrative look-through value per Stagecoach share of approximately 105 pence5.

However, the National Express Board encourages all shareholders to look through the current period of market volatility and value both National Express and Stagecoach based on their respective fundamentals, strong future prospects and the significant benefits and synergies that the National Express Board believes an all-share Combination will deliver.

Since 11 February 2022, and the escalation of recent geopolitical events, the FTSE350 Travel & Leisure index fell over 25% to close to its 18-month low on the day prior to the announcement of the DWS Offer; the National Express share price fell over 30% over the same period.

On 11 February 2022, National Express' closing share price of 284 pence implied:

- an illustrative look-through value per Stagecoach share of approximately 125 pence6, a 19% premium to the DWS Offer

National Express' consensus analyst target price of 330 pence (as at close of business on 16 March 2022) per National Express share implies:

- an illustrative look-through value per Stagecoach share of approximately 140 pence7, a 35% premium to the DWS Offer

However, the National Express Board is confident that National Express's scale, diversification and future growth prospects, in increasingly attractive global markets, provides a more positive outlook even when compared to the pre-pandemic position of the business in 2019, when:

- the National Express share price was 421 pence per share (based on a 12 month VWAP for 2019)8; and

- National Express traded at an estimated 12.2x NTM EV/EBIT (as at 31 December 2019)2.

A recovery of National Express' share price to a pre-pandemic level of 421 pence would imply:

- an illustrative look-through value per Stagecoach share of approximately 170 pence1, a 66% premium to the DWS Offer

The National Express Board therefore believes the Combination represents a superior value creation opportunity when compared to the 105 pence per share DWS Offer.



THE NATIONAL EXPRESS BOARD BELIEVES THE DWS OFFER MATERIALLY UNDERVALUES STAGECOACH

The DWS Offer represents:

- a discount to Stagecoach's consensus analyst target price on 8 March 2022 of 112 pence per Stagecoach share9, the day prior to announcement the DWS Offer;

- a discount to Stagecoach's highest share price in 2021 of 108 pence (on 14 April 2021), a year when public transport operators were experiencing the full impact of the Covid-19 pandemic; and

- only 10.2x Stagecoach's Apr-23E consensus EV/EBIT10 or 5.0x Stagecoach's Apr-23E consensus EV/EBITDA11, a discount to the following sector valuation benchmarks which the National Express Board consider relevant, estimated as:

o 16.1x EV/EBIT for EQT Infrastructure's acquisition of First Student and First Transit announced on 23 April 202112 (a recent disposal of a material business by a UK public transport operator to an infrastructure investor);

o 16.8x EV/EBIT for Basalt's acquisition of Nobina announced on 13 December 202113 (a recent acquisition of a listed European transport operator); and

o 13.1x average NTM EV/EBIT for the UK listed public transport operators (National Express, Stagecoach, FirstGroup, and Go-Ahead Group) as at 31 December 2019 (a forward looking 12 month period unaffected by the Covid-19 pandemic) 14.

The National Express Board believes the Combination provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and the compelling growth and value creation potential of the Combined Group, representing a superior value creation opportunity when compared to the DWS Offer.

The Board of National Express therefore encourages Stagecoach shareholders to take no action in relation to the DWS Offer. Further announcements by National Express will be made as and when appropriate.

 

[TheGrandWazoo]

"The National Express Board believes the Combination provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and the compelling growth and value creation potential of the Combined Group, representing a superior value creation opportunity when compared to the DWS Offer.

The Board of National Express therefore encourages Stagecoach shareholders to take no action in relation to the DWS Offer. Further announcements by National Express will be made as and when appropriate"


https://otp.tools.investis.com/clie.../regulatory-story.aspx?cid=273&newsid=1561307

I did wonder whether NX would simply walk away. Instead of additional money, it's a focus on future benefits and suggesting that this is an opportunist bid when the share price is depressed.

Interesting dynamic as it was originally portrayed very much as a merger with senior management figures from both firms. Given that Stagecoach directors have since been talking to DWS and recommended that bid, you wonder what might happen should NX be persuasive enough to win out in the end?

 

[GusB]

DWS has acquired a 16.99% stake from Threadneedle Asset Management. I wonder if this will persuade National Express to walk away now.

DWS Infrastructure purchases 17% of Stagecoach share capital - routeone

DWS Infrastructure has purchased 16.99% of the Stagecoach issued ordinary share capital from Threadneedle Asset Management.

www.route-one.net

DWS Infrastructure has progressed its bid to purchase Stagecoach with the acquisition of 16.99% of the Perth group’s issued ordinary share capital from Threadneedle Asset Management. DWS has paid 105p per share, in accordance with its final offer for Stagecoach.

In addition, DWS has received an irrevocable undertaking to accept its offer from Stagecoach co-founder Dame Ann Gloag in respect of her approximately 10.5% holding. That is binding even if a higher competing bid for the business is made. Other shareholders in Stagecoach have until 21 May to decide whether to accept the offer from DWS.

It's interesting that they'll have to acquire Gloag's shareholding even if the overall deal doesn't go through.

 

[PG]

DWS has acquired a 16.99% stake from Threadneedle Asset Management. I wonder if this will persuade National Express to walk away now.

DWS Infrastructure purchases 17% of Stagecoach share capital - routeone

DWS Infrastructure has purchased 16.99% of the Stagecoach issued ordinary share capital from Threadneedle Asset Management.

www.route-one.net

It's interesting that they'll have to acquire Gloag's shareholding even if the overall deal doesn't go through.

Are the irrevocable undertakings given by Stagecoach directors (to sell their shares to National Express), as referenced in Post #153 now in fact revocable?

 

[Volvodart]

The DWS Infrastructure offer for Stagecoach has been successful:-

https://otp.tools.investis.com/clie.../regulatory-story.aspx?cid=273&newsid=1586235

As at 4.30 p.m. on 20 May 2022, PEIF III Bidco may count 363,942,816 Stagecoach Shares (representing approximately 65.99 per cent of the issued share capital of Stagecoach (excluding treasury shares)) towards satisfaction of the acceptance condition to its Offer.

 

[hi2u_uk]

Is DWS the same as National Express? Is it worth buying more Stagecoach shares now?

 

[Bletchleyite]

Is dws the same as national express, is it worth buying more stagecoach shares now ??

DWS is a German-based private equity company, who hopefully won't (but possibly will) asset-strip it. Nothing to do with NatEx. It seems the Board and shareholders went for the "quick return" option, not the option that may well have created a world-beating transport business.

 

[MotCO]

DWS is a German-based private equity company, who hopefully won't (but possibly will) asset-strip it. Nothing to do with NatEx. It seems the Board and shareholders went for the "quick return" option, not the option that may well have created a world-beating transport business.

I always remember (with a smile) that an Australian bank (Macquarie) bought Stagecoach London, whether it was as an investment or to asset strip I do not know. It paid £264m for in in June 2010; four years later it was sold back to Stagecoach for £53m!

 

[PG]

I always remember (with a smile) that an Australian bank (Macquarie) bought Stagecoach London, whether it was as an investment or to asset strip I do not know. It paid £264m for in in June 2010; four years later it was sold back to Stagecoach for £53m!

No doubt Souter & co laughed all the way to at the bank

 

[tomuk]

DWS is a German-based private equity company, who hopefully won't (but possibly will) asset-strip it. Nothing to do with NatEx. It seems the Board and shareholders went for the "quick return" option, not the option that may well have created a world-beating transport business.

DWS if formerly Deutsche Bank Asset management and was spun off but Deutsche Bank still own a majority, they are blue chip compared to some of the PE/Hedge fund cowboys.

 

[Anthony ross]

again a bus company sold to someone who knows nothing about running buses

 

[TheGrandWazoo]

again a bus company sold to someone who knows nothing about running buses

Whereas First Group was run by Moir Lockhead, a dyed in the wool busman, and Arriva is owned by a major transport undertaking.

 

[37114]

I always remember (with a smile) that an Australian bank (Macquarie) bought Stagecoach London, whether it was as an investment or to asset strip I do not know. It paid £264m for in in June 2010; four years later it was sold back to Stagecoach for £53m!

I am not saying this is the case but buying something for £264m which has say assets worth £250m on paper, taking out £250m of cash out by say selling and leasing back those assets to the business then flogging the asset light business for £53m (I.e. total income of £303m) is worth doing. That is in essence how venture capitalists work, albeit long-term the business is riddled with liabilities that need to be serviced and are reliant on a continued level of profit.

 

[najaB]

again a bus company sold to someone who knows nothing about running buses

From what I've read about DWS, you're correct: they don't know about running buses. They do, however, know how to run a successful business - which largely means leaving the the day-to-day operations to people who do know what they're doing.

They aren't asset strippers, they appear to invest for the long-haul.

 

[Mikey C]

From what I've read about DWS, you're correct: they don't know about running buses. They do, however, know how to run a successful business - which largely means leaving the the day-to-day operations to people who do know what they're doing.

They aren't asset strippers, they appear to invest for the long-haul.

To be fair most of the "private equity" type investors in things likes buses aren't asset strippers, but merely building up a portfolio of assets from which they'll get a steady financial

What they won't be though is active owners, in the way the Souters were in the early days, with a certain vision. I can't imagine they'll be very innovative owners...

 

[317 forever]

On Tuesday the CMA cleared the National Express - Stagecoach merger.

Fat lot of good that did now that the merger has effectively been sabotaged.

National Express, Stagecoach Merger Gets UK Regulator Clearance

By Anthony O. Goriainoff The U.K. Competition and Markets Authority said Tuesday that the merger between National Express Group PLC and Stagecoach Group PLC...

www.marketwatch.com

The U.K. Competition and Markets Authority said Tuesday that the merger between National Express Group PLC and Stagecoach Group PLC didn't qualify for investigation under the merger provisions of the Enterprise Act 2002.

In January the CMA issued an initial enforcement order on National Express's planned takeover of Stagecoach, preventing the companies from fully combining while it considered the deal, but while the merger was under consideration the deal fell through.
The two public-transport operators had agreed to merge in December in an-all share deal but Stagecoach subsequently pulled out after agreeing to a new 594.9 million-pound ($748.9 million) takeover by Pan-European Infrastructure III, an infrastructure fund managed and advised by DWS Infrastructure.
On May 20 PEIF III said its offer for Stagecoach--which the transport operator agreed to on March 9--was declared unconditional.
On May 16 National Express declared that it wouldn't be increasing the terms of its offer and the deal fell through.

 

[LOL The Irony]

On Tuesday the CMA cleared the National Express - Stagecoach merger.

Fat lot of good that did now that the merger has effectively been sabotaged.

National Express, Stagecoach Merger Gets UK Regulator Clearance

By Anthony O. Goriainoff The U.K. Competition and Markets Authority said Tuesday that the merger between National Express Group PLC and Stagecoach Group PLC...

www.marketwatch.com

Could National Express seek compensation in this instance?

 

[PG]

Could National Express seek compensation in this instance?

Who would they seek it from though? The CMA won't be liable and I can't think of anybody else they could possibly receive compensation from. Really its a part of doing business, sometimes you make deals which fall through and have to take the lose on the chin.