Strategic Rationale for the Combination
The Boards of National Express and Stagecoach believe that the
Combination of National Express, the international and diversified public
transport operator, with Stagecoach, one of the largest UK bus operators,
has a compelling strategic rationale, providing an opportunity for the
Combined Group to:
• further build scale and relevance in an increasingly 'bus-friendly' UK
market, supported by the £3 billion National Bus Strategy for
England as well as measures in Scotland and Wales;
• facilitate an acceleration of the expansion of National Express's
growth businesses across the UK, such as commuter, shuttle,
private hire coach and accessible transport, across Stagecoach's
footprint, as well as deliver other growth and revenue synergies;
• expand across the UK's large urban areas, whilst continuing to
enhance strong relationships with key public sector stakeholders
and city partners who are aligned on the need for modal shift;
• implement industry-leading environmental and sustainability
solutions at scale to deliver high quality, zero-emission public
transport, driving customer demand and playing a critical role in
delivering government priorities for cleaner, greener and more
resilient economies;
• deliver significant operational efficiencies across the combined UK
networks, with, for example, National Express Coach utilising
Stagecoach's well-located depot network to run and maintain its
coach operations; and
• bring the 'best of both' from the combined capabilities of two high
quality operators with well-aligned values and collaborative
cultures, whilst also delivering significant benefits to customers
and passengers, across key aspects of the business including onboard technology and safety; scheduling, network and route
planning; and congestion management.
The Combination also provides a compelling opportunity to be a strategic
accelerator for the Combined Group, with increased scale and financial
flexibility facilitating accelerated growth investment in an attractive and
diversified £1.5 billion global pipeline of opportunities, in particular, in
National Express's North American and ALSA businesses.
Financial Rationale for the Combination
The National Express Board expects that, as a direct result of the
Combination, the Combined Group will be able to realise significant run-rate
annual pre-tax cost synergies of at least £45 million, with approximately 25
per cent. achieved by the end of the first year, approximately 85 per cent.
by the end of the second year and full run rate by the end of the third year
following completion of the Combination. It is expected that the realisation
of these identified synergies will require one-off costs of up to approximately
£40 million, broadly split equally across the first two years following
completion of the Combination.
In addition, the National Express Board is confident of the Combined Group
realising significant growth and revenue synergies, including accelerating
the expansion of National Express's growth businesses across the UK, as
well as utilising the expanded UK bus footprint to optimise sales and
marketing.
The Boards of National Express and Stagecoach believe that the
Combination will result in significant value creation for both sets of
shareholders, reflecting a combination of the agreed Exchange Ratio and
the significant synergy potential of the Combination.
The Boards of National Express and Stagecoach believe that the
Combination will result in a Combined Group that has attractive growth,
margins and cash flow generation potential, capable of generating strong
and sustainable returns for shareholders.
The Board of National Express believes that the stronger balance sheet of
the Combined Group and its enhanced cash flow generation potential will:
• accelerate a reduction towards National Express Group's current 1.5-
2.0x gearing target, which it expects to reach during the first full
financial year after completion of the Combination, whilst
maintaining a strong Baa2/BBB investment grade credit rating;
• generate significant additional capacity for growth investment in an
attractive and diversified £1.5 billion global pipeline of
opportunities, in particular, in National Express's North American
and ALSA businesses; and
• provide enhanced capacity for an attractive and growing dividend.
The Boards of National Express and Stagecoach recognise the importance
of shareholder returns. The Board of National Express intends to reinstate
an annual dividend as soon as it is appropriate to do so and is targeting
reinstatement after completion of the Combination.
The Board of National Express expects the Combination will result in double
digit EPS accretion and a double-digit pre-tax return on invested capital, in
the first full financial year after completion of the Combination.
