National Express and Stagecoach in merger talks

Two UK bus giants could combine to cut costs and tackle ‘green threat’ from FlixBus of Germany

Megabus is one of the brands owned by Stagecoach (Getty Images)

The UK’s two leading long-distance coach companies may merge to cut costs, recover from the coronavirus pandemic and tackle fresh competition.

National Express says it is pursuing an all-share deal with the Stagecoach Group – which is the largest UK bus operator, and whose brands include Megabus.

Both National Express, based in Birmingham, and Perth-based Stagecoach have been hard-hit by the Covid crisis, with complete shutdowns stretching to months. When operations restarted, safety measures kept capacity down.

As they began their recovery, a German competitor, Flixbus, announced it had secured funding of £470m and launched a wide range of UK services – with fares starting at £0.99.

The board of National Express has confirmed it is in discussions with Stagecoach “in relation to a possible all-share combination”.

Stagecoach shareholders would receive 0.36 new National Express ordinary shares for each Stagecoach ordinary share. As a result they would own about a quarter of the combined group.

The deal represents an 18 per cent premium on Stagecoach’s current share price.

A stock exchange announcement from the boards of each company said they believe a merger “would be a strategically compelling proposition with significant growth and cost synergies”. Examples include “National Express Coach utilising Stagecoach’s well-located depot network to run and maintain its coach operations”.

Merging the operations is expected to cost £20m in each of the first two years, with the prospect of saving at least £35m annually within three years.

Sir John Armitt, 75, who has chaired National Express since February 2013, would step down. Stagecoach chairman Ray O’Toole, 64, who is a former chief operating officer of National Express, would become chair of the new group.

The statement added: “There will be no significant impact on the underlying operations of either National Express or Stagecoach.”