National Express offers an unattractive price for Stagecoach, but Stagecoach’s situation isn’t very good either
National Express [dueño de Alsa] offers to tow a smaller British rival. The 1.4 billion pound (1.6 billion euros) trucking company is in talks to buy Stagecoach for about 450 million (520 million) in an all-stock deal. The suggested offer price is not very attractive, but neither is the current situation of Stagecoach.
National Express mainly operates cheap bus transport from London to other UK cities, on routes where the train can cost six times as much. Stagecoach is more focused on operating local buses and lacks the operations of its rival abroad, in regions such as North America and Spain.
Both companies are in trouble: After a post-pandemic recovery in which investors expected the full return of passenger traffic, the shares of both companies have plunged a third since April.
National Express’ share-based offering is therefore slightly opportunistic. Under the potential offering, Stagecoach shareholders get 25% of the combined company, but that’s just an 18% premium to their share price. If a net debt of 300 million pounds (350 million euros) is added, the operation values the company at 4.6 times the adjusted ebitda of 166 million (193 million) until April, according to Refinitiv data. National Express itself traded at 13 times the ebitda in the year until last December.
However, it is unclear when passenger numbers will return to pre-pandemic levels, as fewer and fewer people are commuting to work. Safety-conscious people are ditching buses in favor of cars.
Analysts polled by Refinitiv suggest that Stagecoach’s ebitda will grow only slightly between this year and next, while that of the more diversified National Express could rise 50%. Even before the pandemic, Stagecoach’s revenue was down more than 30% year-on-year in 2019.
The costs are also skyrocketing. Given the post-pandemic driver shortage in the UK, Stagecoach is struggling with recruitment and labor costs. It also faces the need to invest in a new fleet of green buses to meet the government’s decarbonization targets.
Synergies are the other reason to play. The 35 million pounds (41 million euros) of cost savings derived from the elimination of duplicate routes and the shared use of the garages are worth 280 million (330 million), which implies that the share of investors of Stagecoach is 70 million (80 million). As long as antitrust regulators are comfortable with overlap, Stagecoach should accept what is offered.