Company Announcements

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

THIS IS AN ANNOUNCEMENT OF A POSSIBLE OFFER FALLING UNDER RULE 2.4 OF THE UK CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE. THERE CAN BE NO CERTAINTY THAT ANY FIRM OFFER WILL BE MADE.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE           

21^st September 2021

National Express Group PLC ("National Express")

Statement regarding Stagecoach Group plc ("Stagecoach")

Further to the recent announcement by Stagecoach, the Board of National Express, the international and diversified public transport operator, confirms that it is in discussions with Stagecoach, the largest UK bus operator, in relation to a possible all-share combination (the "Potential Combination" to form the "Combined Group").

Under the terms of the Potential Combination, it is expected that Stagecoach shareholders would receive 0.36 new National Express ordinary shares for each Stagecoach ordinary share, resulting in them owning approximately 25 per cent. of the Combined Group.

The Boards of National Express and Stagecoach believe that the Potential Combination would be a strategically compelling proposition with significant growth and cost synergies, as well as delivering strong value creation for both sets of shareholders.

Compelling Strategic and Financial Rationale

It is expected that the Potential Combination would provide an opportunity for the Combined Group to:

-       Deliver significant operational efficiencies across the combined networks, with, for example, National Express Coach utilising Stagecoach's well-located depot network to run and maintain its coach operations;

-       Bring the 'best of both' from the combined operational capabilities of both businesses, whilst also delivering significant benefits to customers and passengers;

-       Accelerate the expansion of National Express' growth businesses, such as private hire coach, corporate shuttle and accessible transport, across Stagecoach's UK footprint, as well as deliver other growth and revenue synergies; and

-       Maintain strong relationships with key public sector stakeholders, best positioning the Combined Group in an evolving industry landscape, with quality public transport playing a critical role in delivering government priorities for cleaner, greener and more resilient economies.

Across National Express' broader international portfolio, the Potential Combination would also yield increased scale and financial flexibility to facilitate continued investment in an attractive and diversified pipeline of high-return growth opportunities in North America and ALSA.

Significant Growth and Cost Synergy Potential

The National Express directors, having reviewed and analysed the potential synergies of the Potential Combination, and having commenced discussions with Stagecoach management to refine this analysis, are confident that as a direct result of the Potential Combination, the Combined Group can realise significant pre-tax cost synergies delivering attractive value for both sets of shareholders. National Express has, to date, identified pre-tax cost synergies that are expected to reach a run-rate of at least £35 million, with approximately 25% achieved by the end of the first year, 85% by the end of the second year and full run rate by the end of the third year following completion of the Potential Combination.

The potential sources of quantified cost synergies include:

·      Approximately 1/3 from network efficiencies and optimisation, including:

-       Enabling National Express Coach to utilise Stagecoach's well-located depot network with enhanced operational flexibility (such as removal of 'double-manning', 'dead mileage' and spare vehicle capacity) as well as for repair and maintenance.

·      Approximately 1/3 from shared operational best practice across the combined UK bus network, including:

-       Rolling-out industry-leading on-board technology systems (such as DriveCam), which National Express believes will maintain high safety, excellent reliability for customers and staff, and reduce insurance costs;

-       Combined and enhanced scheduling, network and route planning to improve efficiencies and reduce overall mileage;

-       Enhancing the technology offering across the Combined Group, including migration to 'best-in-class' apps to provide an optimised customer experience; and

-       Additional adoption of operational best practices including best-in-class engineering, process improvement and other efficiencies.

·      Approximately 1/3 from additional cost savings, including:

-       Rationalisation of duplicate plc costs, back office and IT processes, digital savings and combined procurement; and

-       The potential for non-depot property and office footprint rationalisation.

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 Potential Combination.

In addition, National Express is confident of the Combined Group realising significant growth and revenue synergies, that cannot be quantified for reporting under the Code at this time, including:

·      Accelerating the regional expansion of National Express' growth businesses, such as private hire coach (NETS), corporate shuttle and accessible transport (NEAT), across Stagecoach's UK footprint, as well as deliver a nationwide solution for rail emergency and routine rail replacement services; and

·      Utilising the expanded UK bus footprint to optimise sales and marketing, including improvements in potential long-term available funding.

Key Terms

Under the terms of the Potential Combination, it is expected that Stagecoach shareholders would receive 0.36 new National Express ordinary shares for each Stagecoach ordinary share, resulting in them owning approximately 25 per cent. of the Combined Group. National Express shareholders would own approximately 75 per cent. of the Combined Group.

As at close of business on 20^th September 2021 (being the last business day before the date of this announcement), the terms of the Potential Combination implied a premium relative to the price of Stagecoach's ordinary shares of approximately:

·      18.0 per cent. based on respective closing share prices;

·      23.2 per cent. based on respective last three month volume weighted average share prices; and

·      17.6 per cent. based on respective last six month volume weighted average share prices.

Governance and Management

It is envisaged that the Board of Directors of the Combined Group would comprise an approximately proportionate share of National Express and Stagecoach directors.

Upon completion of the Potential Combination, it is envisaged that:

·      Ray O'Toole would become Chair of the Board of the Combined Group, leveraging his prior experience across both businesses, with Sir John Armitt CBE stepping down having been Chair of National Express since February 2013;

·      Jorge Cosmen would be Deputy Chair of the Combined Group; and

·      Ignacio Garat and Chris Davies would be CEO and CFO respectively of the Combined Group.

Structure

It is envisaged that the Potential Combination will be effected by means of a court sanctioned Scheme of Arrangement of Stagecoach.

Completion of the Potential Combination would be subject to receipt, on satisfactory terms, of regulatory and merger control approvals as appropriate, other customary terms and conditions as well as approval by both Stagecoach shareholders and National Express shareholders (the Potential Combination representing a Class 1 transaction for National Express under the Listing Rules).

Important Information

Appendix 1 to this announcement contains further information concerning the statement in this announcement referring to estimated cost savings expected to arise from the Potential Combination, including reports from PricewaterhouseCoopers LLP, BofA Securities and HSBC as required under Rule 28 of the Code.

Appendix 2 to this announcement contains bases and sources of certain information contained in this announcement.

An announcement of a firm intention to make an offer on a recommended basis by National Express under Rule 2.7 of the Code remains subject to the satisfaction or waiver of a number of pre-conditions including, inter alia, the parties reaching final agreement on the other terms and conditions of the Potential Combination, satisfactory completion of customary reciprocal due diligence as well as final approval by the Boards of National Express and Stagecoach. National Express reserves the right in their absolute discretion to waive any or all of these pre-conditions, in whole or in part.

Discussions between the parties and reciprocal customary due diligence remain ongoing and there can be no certainty that an offer will be made.

This announcement does not amount to a firm intention to make an offer under Rule 2.7 of the Code. In accordance with Rule 2.6(a) of the Code, National Express must, by not later than 5.00 p.m. on 19^th October 2021, either announce a firm intention to make an offer for Stagecoach in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for Stagecoach, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline will be extended only with the consent of Stagecoach and the Takeover Panel in accordance with Rule 2.6(c) of the Code.

Pursuant to Rule 2.5 of the Code, National Express reserves the right to vary the form and / or mix of the offer consideration and vary the transaction structure. National Express also reserves the right to amend the terms of any offer (including making the offer at a lower value):

a)   with the recommendation or consent of the Stagecoach board;

b)   if Stagecoach announces, declares or pays any dividend or any other distribution or return of value to shareholders after the date of this announcement, in which case National Express reserves the right to make an equivalent adjustment to the terms of the Proposed combination;

c)   following the announcement by Stagecoach of a whitewash transaction pursuant to the Code; or

d)   if a third party announces a firm intention to make an offer for Stagecoach on less favourable terms.

A further statement will be made as appropriate.

The person responsible for arranging the release of this announcement on behalf of National Express is Jennifer Myram, National Express Company Secretary.

Enquiries:

National Express

Advisers

Ashurst LLP is acting as legal adviser to National Express in connection with the Potential Combination.

Other Important Information

This announcement is not intended to, and does not, constitute, represent or form part of any offer, invitation or solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities or the solicitation of any vote or approval in any jurisdiction whether pursuant to this announcement or otherwise. Any offer, if made, will be made solely by certain offer documentation which will contain the full terms and conditions of any offer, including details of how it may be accepted.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Merrill Lynch International ("BofA Securities"), which is authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA in the United Kingdom, is acting as financial adviser exclusively for National Express and for no one else and will not be responsible to anyone other than National Express for providing the protections afforded to its clients or for providing advice in relation to the matters referred to in this announcement. Neither BofA Securities, nor any of its affiliates, owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of BofA Securities in connection with this announcement, any statement contained herein or otherwise.

HSBC Bank plc ("HSBC"), which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority, is acting as financial adviser to National Express and no one else in connection with the matters described in this announcement and will not be responsible to anyone other than National Express for providing the protections afforded to clients of HSBC, or for providing advice in connection with the matters referred to herein. Neither HSBC nor any of its group undertakings or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of HSBC in connection with this announcement or any matter referred to herein.

Website Publication

In accordance with Rule 26.1 of the Code, a copy of this announcement will be made available, subject to certain restrictions relating to persons resident in restricted jurisdictions, on National Express's website (www.nationalexpressgroup.com) by no later than noon (London time) on the business day following this announcement. The content of this website is not incorporated into and does not form part of this announcement.

Rule 2.9 Information

In accordance with Rule 2.9 of the Code, National Express confirms that as at the close of business on 30^th June 2021 its issued share capital consisted of 614,086,377 ordinary shares of 5 pence each with voting rights and admitted to trading on the main market of the London Stock Exchange under the ISIN GB0006215205.

Disclosure Requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.