Connected Research

Union policy research in the 21st century

National Express receives private equity bid

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CVC, a private equity group, has confirmed, according to The Guardian amongst other sources, that it is the bidder for National Express. The share price of the transport group has been rising all week owing to speculation as to the identity of what has been up to now a mystery bidder.

CVC is reported to be working in conjunction with the Cosmen family, which is National Express’s biggest shareholder at 19%, on an all-cash bid for National Express, following just hours after First Group, another transport operator, confirmed it would not be bidding further.

Corporate takeover activities are not usually the interest of this blog – but it is a rather slow news day for one thing and, more importantly for another, my interest here was piqued since National Express, which runs the East Coast railway franchise to which I give rather too much of my disposable cash, chose earlier this month to hand the franchise back to the government on the basis, essentially, that it had overpaid for it in the first place and could not afford the profitability payments the government was demanding (and refusing to re-negotiate). National Express is still handling the franchise, with the return of it to the government expected at the end of the year.

It appears that Lord Adonis, Transport Secretary, has a role to play here as the government must sanction any bids for any of the franchises, taking into account not least the new owner’s ‘plans to honour franchise obligations,’ including any proposals in respect of its long-term future. So, this is likely to involve the government in sanctioning (or not) the private equity takeover of the east coast main line franchise (even if only for six months). Now, presuming a CVC takeover of National Express does indeed result from its ‘indicative proposal’, this is interesting.

1. It means that a private equity firm will gain a role, at least temporarily, in running a part of the UK’s railways. Aside of the reaction of the rail unions (there is not yet anything on the RMT website about that), there is a debate to be had about whether a private equity firm should be involved in running a public service (although in reality that’s largely a pass that’s been sold long ago).

2. The plans of the new owners for the franchise are evidently not yet known. It may be that they will carry on with it, having either identified contract savings that National Express has not – and here see the aside in point 1 – or else on the grounds that they think they will be able to persuade Lord Adonis to carry out the re-negotiations that he has so far failed to do. It is likely that CVC is able to pay for top quality legal advice so, if this is the case, it is to be hoped that the contracts are good ones. If so, there is some amusement to be had in a private equity firm having to return cash to the government on the basis of the existing contracts.

3. If they choose instead to carry on with the return of the franchise – then, who made that decision? This is, clearly, the more likely scenario than CVC choosing to carry on with the franchise. The return of the franchise may well have precipitated the bid – but, given that partners of CVC are already the biggest shareholders in the company, it is perfectly possible that the return of the franchise was essentially a (private) condition of the bid being made. It is also likely that CVC has already had a good look at all the contracts (bearing in mind that Adonis also wants National Express to return its other franchises too, rather than cherry pick between the franchises it owns). Both look more than a little dubious. (Did someone say insider trading?)

If this is indeed the case, and the franchise has been returned as a part of the condition of the bid being made, how can Lord Adonis now sanction the CVC bid given the need in such circumstances to examine the new owner’s long-term plans for the franchise and especially given that the new owners clearly had no intention of abiding by the obligations of the franchise?

Proving that may, of course, be somewhat difficult…

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Written by Calvin

24/07/2009 at 7:15 pm

Posted in Politics

Tagged with ,

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