9 March 2022
RECOMMENDED CASH OFFER
FOR
STAGECOACH GROUP PLC
BY
INFRAMOBILITY UK BIDCO LIMITED
1. Summary
The board of directors of Inframobility UK Bidco Limited ("PEIF III Bidco"), a company indirectly wholly owned by Pan-European Infrastructure III, SCSp ("PEIF III"), an infrastructure fund managed and advised by DWS Infrastructure, and the board of directors of Stagecoach Group plc ("Stagecoach") are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by PEIF III Bidco to acquire the entire issued and to be issued ordinary share capital of Stagecoach. Consequently, the Stagecoach Directors have today confirmed that they no longer intend to recommend the National Express Offer announced on 14 December 2021.
The Offer, which will be subject to the Conditions and further terms set out in Appendix 1 to this Announcement and to be set out in the Offer Document, will be made on the following basis:
105 pence in cash for each Stagecoach Share
valuing Stagecoach's existing issued and to be issued ordinary share capital at approximately
£594.9 million on a fully diluted basis.
The Offer Price represents a premium of approximately:
· 54.3 per cent. to the closing price of 68.05 pence per Stagecoach Share on 20 September 2021 (being the last Business Day before the National Express Possible Offer Announcement);
· 37.2 per cent. to the closing price of 76.55 pence per Stagecoach Share on 8 March 2022 (being the last Business Day before the date of this Announcement);
· 22.7 per cent. to the volume-weighted average closing price of 85.59 pence per Stagecoach Share for the period from the date of the National Express Firm Offer Announcement to 8 March 2022 (being the last Business Day before the date of this Announcement);
· 51.4 per cent. to the look-through value of the National Express Offer of 69.34 pence per Stagecoach Share, calculated as 0.36 times the closing price of 192.60 pence per National Express Share on 8 March 2022 (being the last Business Day before the date of this Announcement); and
· 19.6 per cent. to the average volume weighted look-through value of the National Express Offer of 87.80 pence per Stagecoach Share for the period from the date of the National Express Firm Offer Announcement to 8 March 2022 (being the last Business Day before the date of this Announcement).
The cash consideration payable by PEIF III Bidco to holders of Stagecoach Shares under the terms of the Offer will be financed by equity capital committed by PEIF III.
In addition to the cash premium and certainty for investors, the Offer presents a number of benefits to other Stagecoach key stakeholders as well as supporting the significant growth opportunities ahead:
· Stagecoach and DWS share a vision around the benefits of transitioning to a more sustainable world and both have a track record of unlocking value for all stakeholders.
· It will provide continuity in terms of the well-regarded senior management team, with the retention of the current Chief Executive, Finance Director and UK Managing Director.
· For employees, it will provide greater certainty over the future, with overall headcount in frontline operational roles expected to remain the same, as well as the retention of Stagecoach's existing headquarter functions and related roles in Perth, London and Stockport. Employees will also benefit from the commitments given to the SGPS.
· The Offer will provide access to capital to invest in services and deliver on Stagecoach's existing strategy to transition to a net-zero future, delivering multiple benefits to the customers and communities it serves.
2. Background to and reasons for the Offer
DWS Infrastructure is a patient long-term infrastructure investor with a proven track record and extensive expertise in unlocking the value of its portfolio companies using its experience, network and ability to deploy further capital in return enhancing investments. Transportation and essential infrastructure represent a core sector of focus for DWS Infrastructure, with multiple investments in the UK such as Corelink, Kelda (the owner of Yorkshire Water) and Peel Ports where DWS Infrastructure has actively supported capital expenditure investments of >£1 billion during its ownership. DWS Infrastructure has also invested in other leading European transportation platforms, including Hansea, a leading Belgian public bus operator, where DWS Infrastructure is supporting the acceleration of its growth strategy and has engaged with the relevant passenger transport authorities ("PTAs") to agree a roadmap for the replacement of the company's bus fleet with low or zero emission vehicles.
As a leading transportation services provider in the UK, with a significant market share and a track record of strong financial performance and predictable long-term cash flows, the Stagecoach business fits with DWS Infrastructure's investment criteria.
DWS Infrastructure has a strong conviction about the UK bus market opportunity on the back of the introduction of Enhanced Partnerships and potential Franchising arrangements expected to drive increases in bus patronage and improvements in the quality of the service of the network.
DWS Infrastructure intends to focus on long-term sustainable value creation through continued capital investment in Stagecoach's asset base, supporting the management team in delivering the business plan.
The UK bus sector is at an inflection point as the country looks to (i) decarbonise and transition to low or zero emission vehicles as part of ambitious UK Government plans to reach net zero in the transport sector over the next decade; and (ii) maximise the opportunities from the National Bus Strategy to deliver on the joint improvement plans of local transport authorities and operators to attract people away from private cars towards more sustainable bus travel.
The transition to a low carbon footprint sector and the announced improvement of services will require substantial capital investments in the medium to long-term in order to meet the expectations of passengers and the UK Government. As a leading UK bus operator, Stagecoach will play a key role in driving such transition.
Public transport is critical to government successfully achieving its ambitions around economic recovery, levelling up, better health outcomes for citizens and delivering decarbonisation. Stagecoach is already in a strong position to play a central role in meeting these objectives and this will be enhanced by the opportunities provided by the Offer.
DWS Infrastructure's experience in the transportation sector combined with its long-term investment horizon makes it well-placed to support the Stagecoach business and provide benefits for all stakeholders.
3. Stagecoach Group Pension Scheme
DWS Infrastructure has held constructive discussions with the trustees of the SGPS and PEIF III Bidco has entered into a legally binding Memorandum of Understanding with the trustees relating to the future funding and investment strategy of the SGPS. DWS Infrastructure and the trustees of the SGPS have also updated the Pensions Regulator about the Offer, the engagement between DWS Infrastructure and the trustees, and the Memorandum of Understanding.
4. Offer Structure and Timetable
It is intended that the Offer will be implemented by way of a takeover offer (as defined in Part 28 of the Companies Act). The Offer will be subject to the Conditions and certain further terms set out in Appendix 1 to this Announcement and to the full terms and conditions which will be set out in the Offer Document.
As described in and subject to Appendix 1 and the rules of the Takeover Code, the Acceptance Condition shall be satisfied once valid acceptances of the Offer have been received in respect of 75 per cent. in nominal value of the Stagecoach Shares to which the Offer relates and of the voting rights attached to those shares (when aggregated with any Stagecoach Shares acquired or agreed to be acquired by PEIF III Bidco or any member of the PEIF III Topco Group).
PEIF III Bidco may decide to waive the Acceptance Condition down to a lesser percentage subject to and in accordance with the terms of the Acceptance Condition and Rule 10 of the Takeover Code.
PEIF III Bidco reserves the right, with the consent of the Panel and Stagecoach, to elect to implement the acquisition of the Stagecoach Shares by way of a scheme of arrangement of Stagecoach under Part 26 of the Companies Act.
Subject to the satisfaction or waiver of the Conditions and certain further terms set out in Appendix 1, it is expected that the Offer will become or be declared unconditional in the first half of 2022.
5. Irrevocable Undertaking
PEIF III Bidco has received an irrevocable undertaking to accept the Offer (or to vote in favour of a Scheme at the Court Meeting and the resolutions to be proposed at a Stagecoach General Meeting, as necessary) from Dame Ann Gloag (through HGT Finance A Limited) in respect of a total of 57,661,967 Stagecoach Shares, representing approximately 10.5 per cent. of Stagecoach's issued ordinary share capital (excluding treasury shares) on 8 March 2022 (being the last Business Day before the date of this Announcement).
This irrevocable undertaking will remain binding if a higher competing offer for Stagecoach is made. Further details of the irrevocable undertaking (including the circumstances in which it will lapse) are set out in Appendix 3 to this Announcement.
6. Recommendation
The Stagecoach Directors, who have been so advised by Deutsche Bank and RBC as to the financial terms of the Offer, consider the terms of the Offer to be fair and reasonable. In providing their financial advice to the Stagecoach Directors, Deutsche Bank and RBC have taken into account the commercial assessments of the Stagecoach Directors.
Although both Deutsche Bank and RBC are acting as financial advisers to Stagecoach, because DWS is ultimately controlled by Deutsche Bank, only RBC is acting as the independent financial adviser to Stagecoach for the purposes of providing independent advice to the Stagecoach Directors on the Offer under Rule 3 of the Takeover Code.
Accordingly, the Stagecoach Directors intend unanimously to recommend that Stagecoach Shareholders accept or procure the acceptance of the Offer (or in the event that the Offer is implemented by way of a Scheme, to vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Offer at a Stagecoach General Meeting).
On 14 December 2021, National Express Group PLC ("National Express") and Stagecoach announced that they had reached agreement on the terms of a recommended all-share combination of National Express and Stagecoach by way of a court-sanctioned scheme of arrangement of Stagecoach under Part 26 of the Companies Act (the "National Express Offer"). The National Express Firm Offer Announcement stated that the Stagecoach Directors intend to unanimously recommend that Stagecoach Shareholders vote in favour of the National Express Offer at the relevant shareholder meetings.
In light of their intended recommendation of the Offer by PEIF III Bidco, the Stagecoach Directors have decided unanimously to withdraw their recommendation of the National Express Offer.
In connection with the National Express Offer, on 26 January 2022 the CMA imposed an initial enforcement order on Stagecoach and National Express ("IEO"). The IEO was issued with the aim of ensuring neither National Express nor Stagecoach take any pre-emptive action that might prejudice the CMA's investigation of the National Express Offer. Its terms extend to preventing any action which might result in a transfer of the ownership or control of Stagecoach's business, or the disposal of any assets of Stagecoach. The CMA has confirmed to Stagecoach that neither the recommendation and announcement of, nor steps taken to implement and complete, the Offer will engage the IEO. As such, the IEO will not operate to prevent PEIF III Bidco from proceeding with the Offer.
On 14 December 2021, Stagecoach announced that it had entered into agreements to sell the marketing, retail and customer service activities of three of its inter-city coach businesses to ComfortDelGro Corporation Limited ("CDG"), (together the "Disposal"). The Disposal proactively addresses potential regulatory considerations in respect of the National Express Offer. Following the issue of the IEO preventing Stagecoach from disposing of material UK assets, the completion date of the Disposal has been delayed. The Disposal does not automatically terminate as a result of the Offer and Stagecoach continues to comply with its contractual obligations to CDG. For confidentiality reasons it has not been practicable for Stagecoach to discuss the implications of the Offer on the Disposal with CDG in advance of this Announcement but Stagecoach will now do so and provide an update in due course.
Commenting on the Offer, Hamish Mackenzie, Head of Infrastructure at DWS said:
"Stagecoach is a fantastic business with an exciting future as a central player in a revitalised UK bus and coach market. As a long-term investor in essential services with a strong track record in the UK and European transport sectors, DWS Infrastructure will back Stagecoach to rapidly capitalise on the growth opportunities presented by increased public and private investment in UK bus and coach.
We are focused on supporting Stagecoach and its management team to deliver their strategy for the benefit of passengers, local communities and employees, as well as helping achieve ambitious plans for reaching Net Zero. We are pleased the Board of Stagecoach has unanimously recommended our offer and we look forward to working with the existing management team to grow the business sustainably for the long-term."
Commenting on the Offer, Martin Griffiths, Chief Executive of Stagecoach said:
"Stagecoach is a leading multi-modal public transport operator and the proposed offer presents a major opportunity to maximise the significant growth potential ahead as governments seek to deliver economic recovery, level up communities, provide better health outcomes for citizens, and transition to a net zero future.
We believe it will open a new and exciting chapter for Stagecoach, backed by a team who share our vision for a more sustainable future. We also believe it will deliver positive outcomes both now and in the long-term for all of our key stakeholders: the customers and the communities we serve, the people who deliver our high-quality transport services, our partners in national and local government, and the investors who have supported our continued success over many decades."
