Stagecoach / National Express: defensive bus deal needs more axle grease
Vulnerable survivors sometimes gather in an old bus in a post-apocalyptic fantasy world. In the UK during the pandemic, struggling bus companies are also working together for safety. National Express wants to bring rival Stagecoach under its cover with a take over all shares, valued the smaller operator at £470m on Tuesday.
That compares to a 10-year peak of £2.4 billion in 2015. Then the wheel blew. Founded by former bus driver Brian Souter and his sister Ann Gloag, Stagecoach has been at the forefront of rail networks and international markets. A slow exit in Britain’s low-margin bus business has sent share prices down.
Last year’s drop in passenger traffic and growing need for green investments are reflected in this defensive stock-based combination. The terms bring Stagecoach shareholders to just under a quarter of the combined group.
Desperate times call the desperate measure. Souter and Gloag, who have one-quarter equity, agreed to the deal. However, Stagecoach shareholders should think twice before buying their shares at the asking price.
National Express is offering 0.36 shares for each Stagecoach share, representing a 20% premium to the undisturbed share price from September. That values Stagecoach at just under eight times its 2023 earnings. In the 15 years before the start of the pandemic, they were trading at 10 times the average futures earnings. National Express shares are still trading at that level.
The combined group will see cost savings of £35m per year over two years. Taxes and capitalization, those are worth almost £300 million or about three times the value of the premium offered. This shows that National Express can pay more.
How much more? According to ebitda’s current estimates for 2023, Stagecoach’s market share grows to 29% of the combined group’s total. An equal share of the combined equity pushes the asking price up 16% at current prices.
If you break down on the curb, you’ll want to hop on the first usable vehicle that stops for you. But with the bus doors closed, Stagecoach investors won’t be able to ask for an even better deal.
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