It’s taken almost three months but National Express Group PLC (LSE:NEX) and Stagecoach Group PLC (LSE:SGC) have agreed on the terms of their merger.
Stagecoach shareholders will receive 0.36 new National Express shares for each Stagecoach share they own, which means that if the merger goes through, Stagecoach shareholders will end up owning around a quarter of the merged company.
The combination will create a leading multi-modal transportation provider in the UK market, National Express’s stock market statement said.
What does that mean in English?
The next part of the statement gives a clue, with the company saying it will maintain “a diversified international portfolio of bus, coach and rail services”.
The combined group is expected to have a fleet of around 40,000 vehicles, a workforce of about 70,000 people and to have more than a billion passenger journeys made annually on its services – Covid restrictions permitting.
As part of the deal and possibly in an attempt to head off any concerns of the Competitions and Markets Authority (CMA), Stagecoach has entered into agreements to sell its 35% interest in Scottish Citylink Coaches Limited, its UK Megabus business and Falcon South-West, which retails tickets for a single coach route between Plymouth, Bristol and Bristol Airport.
The total proceeds for the disposal are £8.75mln.
Competition and job security concerns
National Express said the merger is subject to approval by both sets of shareholders and also the CMA, and warned the latter may require the combined group to sell off more businesses.
National Express and Stagecoach have identified cost savings of at least £45mln for the combined group through corporate and administration efficiencies, which will likely involve headcount reduction in roles that are duplicated in both organisations. Most of these lay-offs will be head office and information technology roles. The jobs of frontline bus, coach and train drivers could be safe, however, which is perhaps not a surprise given the well-publicised national shortage of drivers, as National Express does not expect the merger to result in any job losses (including in frontline operational roles) or depot closures.
National Express said it recognises the importance of upholding Stagecoach's pension obligations and ensuring the pension schemes remain adequately funded. The company does not intend to make any changes to the benefits provided under these schemes and it is its intention for employer contributions to these schemes to continue in line with current arrangements except for the Stagecoach Group Pension Scheme (SGPS), which is a defined benefit (aka “final salary”) scheme.
Companies regard defined benefit schemes for the workforce the same way Superman regards kryptonite and it is no surprise National Express does not intend to admit new members to the SGPS, although it is honouring Stagecoach’s agreement to allow 33 employees to join the scheme because of their past participation in similar schemes under previous employers.
National Express has, however, agreed to keep the contributions for the annual service costs going, and following completion of the merger there will be paid to the scheme committed contributions of £12.5 million per annum, increasing at 3% a year for ten years or until the scheme's long term funding objective is met, whichever is earlier. National Express also gave a guarantee of the payments due from employers in the SGPS up to a limit of £230 million.
So much for the rank and file, what about Stagecoach’s upper echelons?
The merger will see Ray O’Toole, chairman of Stagecoach, become chair of the combined group, with National Express’s chair, Sir John Armitt, stepping down.
Jorge Cosmen, deputy chair of National Express, will keep his gig as deputy chair of the group.
Ignacio Garat and Chris Davies, chief executive officer (CEO) and chief financial officer (CFO) respectively of National Express, will become CEO and CFO respectively of the combined group.
Martin Griffiths and Ross Paterson will be paid off and will leave their respective roles as CEO and finance director (respectively) of Stagecoach.
The board of the combined group will comprise a combination of National Express and former Stagecoach directors, roughly on a 3:1 split in favour of National Express old lags.
Gregor Alexander and Lynne Weedall, currently independent non-executive directors of Stagecoach, will join the board of the combined group.
And the shareholders?
National Express said it intends to reinstate an annual dividend “as soon as it is appropriate to do so” and hinted that this could happen in the first set of results after the merger goes through – if it does.
"The proposed combination of National Express and Stagecoach, and the unique strengths of both companies and their teams, will create a leading multi-modal passenger transport business in the UK, aiming to deliver superb services to customers and forging the way to a carbon-free future with a new generation of zero-emission buses and coaches,” said Ignacio Garat, the CEO of National Express.
“The combined group will also benefit from the significant growth and cost synergies and a stronger balance sheet to significantly accelerate growth investment across our diversified international portfolio, aiming to deliver attractive sustainable returns to shareholders,” he added.
Shares in National Express were up 1.2% at 238p in lunchtime trading while Stagecoach shares were 8.3% higher.