A £1.9 billion merger between Stagecoach and National Express was put on hold last week as the Competition and Markets Authority (CMA) stepped in to check that the proposed deal is not in breach of strict competition regulations.
The deal, which was agreed in December 2021, would have seen an all-share takeover of Stagecoach by National Express to give the combined firm dominance over the coach travel market in the UK. The CMA are worried that a deal would result in the two operators “ceasing to be distinct” in the market and therefore reducing competition significantly.
The CMA is a non-ministerial government department whose role it is to create and uphold competition regulations in order to protect consumers from a sub optimal market, where prices are high, and choice is limited. Such environment can be caused by a dominant firm controlling the market, that also has the ability to set high prices knowing consumers have restricted options and are thus forced to pay more.
The CMA have laid down an initial enforcement order (IEO) on both parties, which inhibits them from taking any “pre-emptive” action of the deal before the CMA have concluded their investigation. For example, the firms are not allowed to sell off any of the businesses or combine any of their operations until an agreement has been reached. This halts Stagecoach’s plans to sell off their businesses Megabus and South West Falcon to Singapore’s ComfortDelGro along with their 35% stake in the Scottish Citylink Coaches.
The new deal would see National Express shareholders own about three quarters of the new group while Stagecoach would own around one quarter. Furthermore, the merger would see the new group accumulate 70,000 vehicles and another 40,000 workers. Despite this strong workforce around 50 jobs are expected to be cut from head office, IT and corporate roles in an attempt to cut costs after losses in the pandemic saw both firms struggle.
In a statement Stagecoach did not believe that day-to-day operations of the firms would be affected while the inquiry is underway, which bodes well for consumers. After months of lockdown the last thing both firms and consumers want is disrupted operations hindering their post lockdown recovery.
The pandemic hit the travel industry hard as was expected. Therefore, an aim of the deal is to cut costs for the coach operators, with National Express claiming that the new merger would cut costs by £45 million. Lack of revenue in the pandemic could explain the timing of the proposed deal, especially after Stagecoach’s failed bid to takeover National Express for £1.6 billion back in 2009. The willingness of both firms to reach a deal symbolises to me, a change in operating environment, with less focus on the two firms out competing each other and more focus on both firms surviving and recovering losses to fuel long term prospects.
National Express and Stagecoach are keen for the deal to go ahead, already expressing their willingness to work together with the CMA to ensure competition regulations are not breached and the issues can be resolved. Looking forward, I see current concerns being worked through and resolved rather quickly. The CMA, like the rest of the government, would be eager to see travel in the UK bounce back after the pandemic. Similarly the coach companies will be keen to settle any disputes so they can quickly begin operating in the new way as a merged firm. It is likely that the issue will be resolved by the end of March which is when government support for travel firms hit by the pandemic ends. So, it may still be a few weeks until details of the merger are confirmed, but I see it as unlikely a total ban on the merger will be applied. National express and Stagecoach both remain optimistic that a deal will be completed by the end of 2022.