National Express PLC and Stagecoach PLC are in advanced talks about a merger that would combine their rail and bus services and slash the operating costs.
The deal would see National Express shareholders end up with 75% of the enlarged company, which would be worth about £1.75bn based on the closing share prices last night.
Both companies have been badly affected by the pandemic with the UK government now effectively running the rail and bus networks again and paying fees to operators such as National Express and Stagecoach to operate the services.
In a statement, National Express said the merger would result in cost savings of about £35mln a year through synergies such as it using Stagecoach’s depots to run its coach services.
Other savings would come from the rationalisation of office and IT functions, sharing technology and optimising routes between the companies.
Restructuring costs would amount to £40mln said the statement.
Stagecoach also said it was " a strategically compelling proposition with the potential to realise significant growth and cost synergies, as well as delivering strong value creation for both sets of shareholders."
Terms of the deal would see Stagecoach shareholders receive 0.36 of a National Express share, which would be worth around 80p at the current 223p and an 18% premium to the closing price of 68p yesterday.
National Express’s Ignacio Grant would be chief executive of the combined group and Chris Davies CFO, with Stagecoach’s Ray O’Toole, a former National Express man, to be the chair.
Analysts at Liberum said: "We are cautious on the merits of the deal, pending further details. We envisage some disposals being required to secure CMA clearance, in particular the overlap in long distance coach operations."