National Express Combination with Stagecoach
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.
THE FOLLOWING ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT AND INVESTORS SHOULD NOT MAKE ANY INVESTMENT DECISION IN RELATION TO THE NEW NATIONAL EXPRESS SHARES EXCEPT ON THE BASIS OF THE INFORMATION IN THE SCHEME DOCUMENT, THE PROSPECTUS AND THE CIRCULAR WHICH ARE PROPOSED TO BE PUBLISHED IN DUE COURSE.
FOR IMMEDIATE RELEASE
17 March 2022
National Express Board believes the Combination with Stagecoach
Represents a Superior Value Creation Opportunity When Compared to the DWS Offer
The National Express Board believes the Combination with Stagecoach:
· Builds on a leading and globally diversified public transport champion, unlocking an illustrative look-through value of up to approximately 170 pence per Stagecoach share1
· Delivers significant synergies unique to the Combination which, when illustratively valued at an estimated pre-pandemic National Express trading multiple of 12.2x EV/EBIT2, represents 63 pence per National Express share and 23 pence per Stagecoach share3
· Provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and, in particular, the compelling benefits of the all-share Combination with National Express
· Represents a superior value creation opportunity when compared to the DWS Offer, which the National Express Board believes materially undervalues Stagecoach
The Board of National Express Group PLC ("National Express") sets out below its considered response to the announcement by Inframobility UK Bidco Limited ("DWS") on 9 March 2022 of its all-cash offer (the "DWS Offer") for Stagecoach Group PLC ("Stagecoach") of 105 pence per Stagecoach share. The Board of National Express will remain disciplined in its assessment of its options going forward.
Appendix 1 to this announcement contains the sources and bases of certain information contained in this announcement with the end notes in the text of this announcement corresponding to paragraph references in Appendix 1.
COMBINATION WITH NATIONAL EXPRESS IS A COMPELLING OPPORTUNITY FOR ALL SHAREHOLDERS
The National Express Board believes the Combination with Stagecoach will:
(i) Creates a leading multi-modal transportation provider in the UK;
(ii) Deliver significant synergies unique to this Combination; and
(iii) Accelerate National Express' Evolve strategy in increasingly attractive global markets.
(i) Creates a Leading Multi-modal Transportation Provider in the UK
The National Express Board believes the Combination with Stagecoach provides a compelling strategic opportunity to:
- further build scale and relevance in an increasingly 'bus-friendly' UK market, supported by the National Bus Strategy for England as well as similar measures in Scotland and Wales;
- 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;
- 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 on-board technology and safety; scheduling, network and route planning; and congestion management;
- 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
- 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.
In addition, the National Express Board believes the Combination creates an exciting partnership with Stagecoach with:
- a balanced Board and management team, including Ray O'Toole who is expected to become Chairman of the Board of the Combined Group; Gregor Alexander and Lynne Weedall who are expected to join the Combined Board; and Carla Stockton-Jones of Stagecoach who is expected to become Managing Director of UK Bus, with Tom Stables as CEO of UK and Germany;
- an intention to continue using the National Express and Stagecoach brands; and
- an expectation that the Combination will not result in any job losses in front-line operational roles or depot closures given the minimal direct operational overlap of the two businesses.
In a period that has seen a surge of private equity firms acquiring British companies, the Combination represents a rare example of two UK listed companies combining to form a global leader in their industry.
(ii) Deliver Significant Synergies Unique to this Combination
The National Express Board expects that the Combined Group will be able to realise significant run-rate annual pre-tax cost synergies of at least £45 million as a result of the Combination. When illustratively valued at an estimated pre-pandemic National Express trading multiple of 12.2x (NTM EV/EBIT as at 31 December 2019)2, these synergies would unlock value of over £500 million, representing:
- 23 pence per Stagecoach share3; and
- 63 pence per National Express share3.
Further information in relation to the above synergy estimate, including the bases of belief, the principal assumptions and sources of information, is set out in Appendix 2 to this Announcement.
In addition, National Express is confident of the Combined Group realising significant growth and revenue synergies that cannot be quantified for reporting under the Takeover Code at this time.
(iii) Accelerate National Express' Evolve Strategy in Increasingly Attractive Global Markets
In 2021 National Express launched its Evolve Strategy with a clear vision and purpose, to be the world's premier shared mobility operator, leading modal shift from cars to public transport, and with services offering leading safety, reliability and environment standards that customers trust and value.
Through this, National Express has a compelling investment case, with a differentiated position in the sector driven by:
- a uniquely diversified and balanced international portfolio;
- leading positions and high market share in attractive and growing international markets; and
- significant opportunities to compound growth through organic and inorganic expansion and multi-modal in-market consolidation.
National Express is also at the forefront of favourable industry dynamics with mobility restrictions almost fully lifted across its global markets and with strong sequential growth in passenger numbers expected to continue across all business lines over the coming months.
Looking further ahead, and as set out at its recent Capital Markets Day, the National Express Board has full conviction in the Evolve strategy and its stand-alone targets4 of:
- at least £1 billion of revenue growth from 2022 to 2027;
- at least £100 million of profit growth from 2022 to 2027, with an operating profit margin averaging around 9% over the coming years; and
- at least £1.25 billion of free cash between 2022 and 2027 inclusive, with average cash conversion over 80%.
In addition to National Express' attractive stand-alone prospects, the Board of National Express believes the Combination with Stagecoach provides a compelling opportunity to be a strategic accelerator for the Combined Group, targeting 4 :
- an additional £500 million of additional growth investment capacity in an attractive and diversified £1.5 billion global pipeline of opportunities, in particular, in National Express's North American and ALSA businesses;
- at least £1.5 billion of revenue growth from 2022 to 2027;
- at least £200 million of EBIT growth from 2022 to 2027, including significant growth and cost synergies; and
- a strong balance sheet, enhanced cash flow and capacity for an attractive and growing dividend .
The Combination provides Stagecoach shareholders with the opportunity to participate fully in this global opportunity.
SIGNIFICANT VALUE CREATION OPPORTUNITY FOR BOTH SETS OF SHAREHOLDERS
The following look-through values per Stagecoach share and premia to the DWS Offer are illustrative based on the agreed Combination exchange ratio of 0.36x and taking into account synergies illustratively valued on the basis set out in section (ii) of this announcement.
The current National Express share price (as at the close of business on 16 March 2022) of 232 pence already implies an illustrative look-through value per Stagecoach share of approximately 105 pence5.
However, the National Express Board encourages all shareholders to look through the current period of market volatility and value both National Express and Stagecoach based on their respective fundamentals, strong future prospects and the significant benefits and synergies that the National Express Board believes an all-share Combination will deliver.
Since 11 February 2022, and the escalation of recent geopolitical events, the FTSE350 Travel & Leisure index fell over 25% to close to its 18-month low on the day prior to the announcement of the DWS Offer; the National Express share price fell over 30% over the same period.
On 11 February 2022, National Express' closing share price of 284 pence implied:
- an illustrative look-through value per Stagecoach share of approximately 125 pence6, a 19% premium to the DWS Offer
National Express' consensus analyst target price of 330 pence (as at close of business on 16 March 2022) per National Express share implies:
- an illustrative look-through value per Stagecoach share of approximately 140 pence7, a 35% premium to the DWS Offer
However, the National Express Board is confident that National Express's scale, diversification and future growth prospects, in increasingly attractive global markets, provides a more positive outlook even when compared to the pre-pandemic position of the business in 2019, when:
- the National Express share price was 421 pence per share (based on a 12 month VWAP for 2019)8; and
- National Express traded at an estimated 12.2x NTM EV/EBIT (as at 31 December 2019)2.
A recovery of National Express' share price to a pre-pandemic level of 421 pence would imply:
- an illustrative look-through value per Stagecoach share of approximately 170 pence1, a 66% premium to the DWS Offer
The National Express Board therefore believes the Combination represents a superior value creation opportunity when compared to the 105 pence per share DWS Offer.
THE NATIONAL EXPRESS BOARD BELIEVES THE DWS OFFER MATERIALLY UNDERVALUES STAGECOACH
The DWS Offer represents:
- a discountto Stagecoach's consensus analyst target price on 8 March 2022 of 112 pence per Stagecoach share9, the day prior to announcement the DWS Offer;
- a discountto Stagecoach's highest share price in 2021 of 108 pence (on 14 April 2021), a year when public transport operators were experiencing the full impact of the Covid-19 pandemic; and
- only 10.2x Stagecoach's Apr-23E consensus EV/EBIT10 or 5.0x Stagecoach's Apr-23E consensus EV/EBITDA11, a discount to the following sector valuation benchmarks which the National Express Board consider relevant, estimated as:
o 16.1x EV/EBIT for EQT Infrastructure's acquisition of First Student and First Transit announced on 23 April 202112 (a recent disposal of a material business by a UK public transport operator to an infrastructure investor);
o 16.8x EV/EBIT for Basalt's acquisition of Nobina announced on 13 December 202113 (a recent acquisition of a listed European transport operator); and
o 13.1x average NTM EV/EBIT for the UK listed public transport operators (National Express, Stagecoach, FirstGroup, and Go-Ahead Group) as at 31 December 2019 (a forward looking 12 month period unaffected by the Covid-19 pandemic) 14.
The National Express Board believes the Combination provides Stagecoach shareholders with the opportunity to participate fully in the exciting future of the industry and the compelling growth and value creation potential of the Combined Group, representing a superior value creation opportunity when compared to the DWS Offer.
The Board of National Express therefore encourages Stagecoach shareholders to take no action in relation to the DWS Offer. Further announcements by National Express will be made as and when appropriate.
Enquiries:
National Express
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Chris Davies, Chief Financial Officer |
+44 (0) 121 460 8655 |
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Louise Richardson, Head of Investor Relations |
+44 (0) 7827 807766 |
Advisers
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BofA Securities (Lead Financial Adviser and Corporate Broker to National Express) |
+44 (0) 20 7628 1000 |
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David Lloyd Ed Peel |
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Justin Anstee |
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Geoff Iles |
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HSBC (Financial Adviser and Corporate Broker to National Express) |
+44 (0) 20 7991 8888 |
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Anthony Parsons |
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Sam McLennan |
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Jon Connor |
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Alex Thomas |
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Maitland/AMO (Public Relations Adviser to National Express) |
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Neil Bennett |
+44 (0) 20 7379 5151 |
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James McFarlane |
+44 (0) 7584 142665 |
Ashurst LLP is acting as legal adviser to National Express.
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.
Cautionary Note Regarding Forward Looking Statements
This announcement (including information incorporated by reference into this announcement), oral statements regarding the Combination and other information published by National Express and Stagecoach contain certain forward looking statements with respect to the financial condition, strategies, objectives, results of operations and businesses of National Express and Stagecoach and their respective groups and certain plans and objectives with respect to the Combined Group. These forward looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of National Express and Stagecoach about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward looking statements. The forward looking statements contained in this announcement include statements relating to the expected effects of the Combination on National Express and Stagecoach, the expected timing and scope of the Combination and other statements other than historical facts. Forward looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aims", "continue", "will", "may", "should", "would", "could", or other words of similar meaning. These statements are based on assumptions and assessments made by National Express, and/or Stagecoach in light of their experience and their perception of historical trends, current conditions, future developments and other factors they believe appropriate. By their nature, forward looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future and the factors described in the context of such forward looking statements in this announcement could cause actual results and developments to differ materially from those expressed in or implied by such forward looking statements. Although it is believed that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and readers are therefore cautioned not to place undue reliance on these forward looking statements.
There are several factors which could cause actual results to differ materially from those expressed or implied in forward looking statements. Among the factors that could cause actual results to differ materially from those described in the forward looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. For a discussion of important factors which could cause actual results to differ from forward looking statements in relation to National Express Group or Stagecoach Group, refer to the annual report and accounts of National Express Group for the financial year ended 31 December 2020 and of Stagecoach Group for the financial year ended 1 May 2021, respectively.
Each forward looking statement speaks only as at the date of this announcement. Neither National Express nor Stagecoach, nor their respective groups assumes any obligation to update or correct the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.
No Profit Forecasts or Estimates
Save where expressly stated, no statement in this announcement (including any statement of estimated synergies) is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for National Express, Stagecoach or the Combined Group, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for National Express, Stagecoach or the Combined Group as appropriate.
Quantified Financial Benefits Statement
The statements in the Quantified Financial Benefits Statement relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies and which may in some cases be subject to consultation with employees or their representatives. The synergies and cost savings referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. For the purposes of Rule 28 of the Takeover Code, the Quantified Financial Benefits Statement contained in this announcement is the responsibility of National Express and the National Express Directors.
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.
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.
APPENDIX 1
SOURCES AND BASES
Capitalised terms in this announcement, unless otherwise defined, have the same meaning as set out in the National Express announcement of the "Recommended All-Share Combination" dated 14 December 2021.
Unless otherwise stated in this announcement, financial information relating to National Express and Stagecoach has been extracted or derived from the Stagecoach Rule 2.9 announcement dated 9 March 2022, the National Express "Voting Rights and Capital" RNS dated 4 January 2022, the National Express announcement of the "Recommended All-Share Combination" dated 14 December 2021, the Stagecoach 2022 Half Year Results and the DWS Offer announcement dated 9 March 2022.
Certain figures included in this document have been subjected to rounding adjustments.
The issued share capital of National Express consists of 614,086,377 National Express shares, with no shares held in Treasury. Accordingly, the basic share capital of National Express used for calculations is 614,086,377 National Express shares. The share count used for Stagecoach is 551,518,591 Stagecoach shares which is sourced from the Stagecoach Rule 2.9 announcement dated 9 March 2022.
National Express and Stagecoach share price and trading volumes data used in this Announcement have been sourced from FactSet on any particular date. FTSE350 Travel & Leisure index data is sourced from Bloomberg.
The relevant bases of calculation and sources of information are provided below. Where such information is repeated in this document, the underlying sources and bases are not repeated.
1. The reference to the illustrative look-through value of up to approximately 170 pence per Stagecoach share is calculated as the sum of:
a. The synergies per Stagecoach share which is sourced and based in paragraph 3.d below.
b. National Express' 2019 12 month VWAP (sourced and based in paragraph 8) multiplied by the 0.36x Combination agreed exchange ratio.
c. 170p has been rounded down to the nearest 5p from 174.2p for presentational purposes only.
This illustrative look-through value is not an asset valuation for the purposes of Rule 29 of the City Code.
2. The reference to the estimated pre-pandemic National Express 31 December 2019 NTM EV/EBIT trading multiple is estimated using a share count of 510,487,276 from FactSet, a share price of 470p and balance sheet data taken as of 31 December 2019 (including net debt of £1,241.5m, gross pension liabilities of £90.0m, minority interests of £38.1m and investments in associates of £17.9m) sourced from the National Express 2019 annual report. The EBIT figure used is the FactSet consensus NTM estimate of £306.6m as of 31 December 2019.
3. The reference to the illustrative synergy value of 63 pence per National Express share, and 23 pence per Stagecoach share is calculated as follows:
a. Total value of synergies (£514m, rounded down to £500m for presentational purposes only) is illustratively calculated by multiplying identified annual pre-tax cost synergies of at least £45m by 12.2x (National Express' estimated NTM EV/EBIT as at 31 December 2019, sourced and based in paragraph 2), less estimated one-off costs of £40 million to achieve those synergies.
b. The pre-pandemic multiple is used on the basis that the National Express Board believe this better represents the National Express business on an ongoing basis.
c. Synergies per National Express share is calculated by multiplying the total value of synergies by National Express' pro-forma ownership in the Combined Group (sourced and based in paragraph 3.e) and dividing by National Express' basic shares outstanding.
d. Synergies per Stagecoach share is calculated by multiplying the total value of synergies by Stagecoach's pro-forma ownership in the Combined Group (sourced and based in paragraph 3.e) and dividing by Stagecoach's share count.
e. Stagecoach's pro-forma ownership share of the Combined Group is calculated by multiplying Stagecoach's share count and the 0.36x Combination agreed exchange ratio, and dividing this pro forma number of new shares by the sum of National Express' basic shares outstanding and the pro forma new shares.
4. These statements regarding future financial performance are aspirational targets and are not intended to be profit forecasts or estimates for any period and should not be interpreted to mean that earnings or earnings per share for National Express, as appropriate, for the current or future financial periods would necessarily match or exceed the historical published earning or earnings per share for National Express.
5. The reference to an illustrative look through value of approximately 105 pence per Stagecoach share is calculated as the sum of the following:
a. The synergies per Stagecoach share which is sourced and based in paragraph 3.d.
b. National Express' closing share price as at 16 March 2022 of 232p multiplied by the 0.36x Combination agreed exchange ratio;
c. 105p has been rounded down to the nearest 5p from 106.2p for presentational purposes only.
6. The reference to an illustrative look through value of approximately 125 pence per Stagecoach share is calculated as the sum of the following:
a. The synergies per Stagecoach share which is sourced and based in paragraph 3.d.
b. National Express' closing share price as at 11 February 2022 of 284p multiplied by the 0.36x Combination agreed exchange ratio;
c. 125p has been rounded up to the nearest 5p from 124.9p for presentational purposes only.
7. The reference to an illustrative look through value of approximately 140 pence per Stagecoach share is calculated as the sum of the following:
a. The synergies per Stagecoach share which is sourced and based in paragraph 3.d.
b. National Express' consensus analyst target price of 330 pence multiplied by the 0.36x Combination agreed exchange ratio;
i. National Express' consensus analyst target price of 330 pence is calculated by taking the mean target prices from the following investment analysts: Liberum at 290p (14 March 2022, sourced from FactSet), Peel Hunt at 335p (11 March 2022, sourced from FactSet), Berenberg at 340p (10 March 2022, sourced from FactSet), Jefferies at 300p (10 March 2022, sourced from FactSet), Investec at 342p (10 March 2022, sourced from FactSet), UBS at 350p (10 March 2022, sourced from FactSet) and Citi at 350p (10 March 2022, sourced from FactSet).
c. 140p has been rounded down to the nearest 5p from 141.2p for presentational purposes only.
8. The reference to the National Express's 2019 12 month VWAP for the calendar year ending 31 December 2019 of 421 pence is calculated using the daily closing share price and daily volume traded on each trading day in 2019 as per FactSet.
9. The reference to consensus analyst target prices for Stagecoach on 8 March 2022 is calculated by taking the mean target prices from the following investment analysts: Peel Hunt at 130p (8 March 2022, sourced from FactSet), Investec at 123p (4 March 2022), Liberum at 131p (2 March 2022), Jefferies at 110p (2 March 2022), UBS at 115p (8 December 2021) and Citi at 65p (8 December 2021).
10. The reference to the DWS Offer representing 10.2x Stagecoach Apr-23E consensus EV/EBIT is calculated as follows:
a. Stagecoach enterprise value is calculated as follows:
i. Stagecoach equity value is calculated using the 105p DWS Offer price and 551,518,591 share count.
ii. Net debt of £267.5m as of 30 October 2021 is sourced from the Stagecoach 2022 Half Year Results report.
iii. Other adjustments including rail liabilities of £47.7m, net pre-tax retirement benefit liabilities of £247.2m and associated deferred tax assets of £61.8m, and interests in joint ventures of £8.4m, are sourced from the Stagecoach 2022 Half Year Results report as at 30 October 2021.
b. Apr-23E consensus EBIT of £105m is calculated by taking the mean April 2023E EBIT from the following investment analysts, whose forecasts are have been updated since the release of Stagecoach's Half Year Results on 8 December 2021: Liberum at £113m (10 March 2022), Peel Hunt at £104m (9 March 2022, sourced from FactSet), Jefferies at £106m (8 March 2022, sourced from FactSet), Investec at £92m (4 March 2022) and UBS at £108m (8 December 2021). In accordance with Rule 28.8 (c), this consensus forecast is not being published with the agreement or approval of Stagecoach and has not been reviewed or reported on in accordance with the requirements of Rule 28.1(a).
11. The reference to the DWS Offer representing 5.0x Stagecoach Apr-23E consensus EV/EBITDA is calculated as follows:
a. Stagecoach enterprise value is sourced and based in paragraph 10.a.
b. Apr-23E consensus EBITDA of £213m is calculated by taking the mean April 2023E EBITDA from the following investment analysts, whose forecasts are have been updated since the release of Stagecoach's Half Year Results on 8 December 2021: Liberum at £230m (10 March 2022), Peel Hunt at £214m (9 March 2022, sourced from FactSet) and Investec at £197m (4 March 2022). In accordance with Rule 28.8 (c), this consensus forecast is not being published with the agreement or approval of Stagecoach and has not been reviewed or reported on in accordance with the requirements of Rule 28.1(a).
12. The stated EV/EBIT multiple for EQT Infrastructure's acquisition of First Student and First Transit announced on 23 April 2021 (a recent disposal of a material business by a UK public transport operator to an infrastructure investor), has been estimated as follows:
a. Headline enterprise value is sourced from the deal announcement press release.
b. First Student and First Transit NTM EBIT estimates of $218.5m and $64.8m respectively are sourced from FactSet, as at 31 December 2019 (a forward looking 12 month period unaffected by the Covid-19 pandemic).
c. This compares to the total adjusted operating profit of $241.6m stated in the deal announcement press release for the last full financial year to 31 March 2020.
13. The stated EV/EBIT multiple for Basalt's acquisition of Nobina announced on 13 December 2021 (a recent acquisition of a listed European transport operator), has been estimated as follows:
a. Deal enterprise value is calculated using the offer share price of SEK 108 and share count of 86,325,590 as stated in the deal announcement press release and the net debt of SEK 5,167m stated in Nobina AB's Q3 FY2021/2022 interim report (the period ending 30 November 2021).
b. Nobina AB NTM EBIT estimate of SEK 865m is sourced from FactSet, as at 13 December 2021.
14. The stated average NTM EV/EBIT multiple for the UK listed public transport operators (National Express, Stagecoach, FirstGroup, and Go-Ahead Group) as at 31 December 2019, has been estimated as follows:
a. Enterprise values calculated as follows:
i. Equity values are calculated using share price and share count data sourced from FactSet as at 31 December 2019.
ii. Net debt figures are based on the latest balance sheets for or prior to 31 December 2019 and sourced from public filings.
iii. Other adjustments including pension liabilities, interests in joint ventures, and adjustments for restricted cash are based on the latest balance sheets for or prior to 31 December 2019 and sourced from public filings.
b. NTM EBIT estimates have been sourced from FactSet, as at 31 December 2019 (a forward looking 12 month period unaffected by the Covid-19 pandemic).
i. FactSet NTM EBIT estimates for National Express, Stagecoach, and FirstGroup are post-IFRS 16 and not adjusted.
ii. FactSet NTM EBIT estimate for Go-Ahead Group is pre-IFRS 16, and therefore adjusted for the estimated IFRS 16 impact. The Go-Ahead Group pre-IFRS 16 NTM EBIT estimate of £115.0m is grossed up by £10.4m, being the annualised figure of the reported IFRS 16 effect on EBIT of £5.2m for the six months ended 28 December 2019 (sourced from Go-Ahead Group's H1 FY2020 filings).
APPENDIX 2
QUANTIFIED FINANCIAL BENEFITS STATEMENT
The below information has been extracted without material adjustment from Appendix 4 of the National Express announcement of the "Recommended All-Share Combination" dated 14 December 2021.
The Board of National Express believes that as a direct result of the Combination, the Combined Group will be able to realise significant synergies, delivering attractive value for both sets of shareholders.
National Express has, to date, identified annual pre-tax cost synergies that are expected to reach a run-rate 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.
The potential sources of quantified cost synergies include:
(a) approximately 25 per cent. 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;
(b) approximately 35 per cent. from shared operational best practice across the combined UK bus network, including:
(i) 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;
(ii) combined and enhanced scheduling, network and route planning to improve efficiencies and reduce overall mileage;
(iii) enhancing the technology offering across the Combined Group, including migration to 'best-in-class' apps to provide an optimised customer experience; and
(iv) additional adoption of operational best practices including best-in-class engineering, process improvement and other efficiencies.
(c) approximately 40 per cent. from additional cost savings, including:
(i) rationalisation of duplicate plc costs, back office and IT processes, digital savings and combined procurement; and
(ii) 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 Combination.
Further information on the bases of belief supporting the Quantified Financial Benefits Statement, including the principal assumptions and sources of information, is set out below.
Bases of Belief and Principal Assumptions
Following initial discussions regarding the Combination, a National Express synergy development team was established to evaluate and assess the potential synergies arising from the Combination (the "Team"). The Team, which comprises senior National Express strategy and finance personnel, has worked with the relevant National Express functional heads and other relevant personnel to identify synergy initiatives, to test them, and, where possible, to quantify the expected financial benefits and the costs associated with realising them. In addition, National Express held discussions with Stagecoach management to refine this analysis as part of its due diligence process.
In preparing the Quantified Financial Benefits Statement, National Express and Stagecoach have shared certain operating and financial information to facilitate the analysis in support of assessing the potential synergies expected to arise from the Combination. As is typical of these exercises, however, confidentiality and regulatory considerations have limited the extent of the sharing of information and data. Where the sharing of information and data has been limited, the Team has made estimates and assumptions to aid its development of individual synergy initiatives. The assessment and quantification of the potential synergies have in turn been informed by National Express management's industry experience and knowledge of its existing business.
The cost bases used as the basis for the Quantified Financial Benefits Statement are a blend of National Express's FY19 (for Coach) and FY21 (for Bus) financial results and Stagecoach's FY20 financial results.
In assessing potential synergies expected to arise from the Combination and the associated costs of realising them, the National Express Board have made the following assumptions, all of which relate to matters which are outside their influence:
· there will be no significant impact on the underlying operations of either National Express or Stagecoach or their ability to continue to conduct their businesses; and
· there will be no material change to macroeconomic, political or legal conditions in the markets or regions in which the Combined Group operates which will materially impact on the implementation of or costs to achieve the proposed cost savings.
The majority of cost saving synergies are substantially within the influence of the National Express Directors.
In general, the synergy assumptions have in turn been risk adjusted, with the National Express Directors exercising a degree of prudence in the calculation of the estimated synergy benefits described in this announcement above.
Reports
As required by Rule 28.1(a) of the Takeover Code, PricewaterhouseCoopers ("PwC"), as reporting accountants to National Express, and BofA Securities and HSBC, as financial advisors to National Express, have provided the reports required under the Rule in the Announcement of the Recommended All-Share Combination dated 14 December 2021.
Notes
These statements are not intended as a profit forecast and should not be interpreted as such. These statements of estimated synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the estimated synergies referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. Neither these statements nor any other statement in this announcement should be construed as a profit forecast or interpreted to mean that National Express's earnings in the first full year following completion of the Combination, or in any subsequent period, will necessarily match or be greater than or be less than those of National Express or Stagecoach for the relevant preceding financial period or any other period.
Due to the scale of the Combined Group and in the light of any remedies which may be required in order to secure regulatory and merger control approvals, there may be additional changes to the Combined Group's operations. As a result, and given the fact that the changes relate to the future, the resulting synergies may be materially greater or less than those estimated.
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