NATIONAL Express has rejected an unsolicited takeover bid by Scottish bus and train firm FirstGroup, it emerged today.
The First ScotRail operator is understood to have launched a surprise move to buy its struggling rival. It comes just a week after National Express agreed a deal to ease restrictions on its £1.2 billion debt burden.
Concerns are growing, however,
for the health of the firm, which is due to post a trading update on Wednesday.
It is suffering from a reduction in demand for rail services as a result of the recession, as well as suggestions that it heavily overpaid for the East Coast rail franchise, which runs from London to Edinburgh.
It has been frantically trying to renegotiate the terms of the franchise, the most expensive in the industry, but the Government has insisted that it will not budge.
Analysts say that the approach by Scottish rival First suggests that some sort of deal with the Department for Transport is imminent.
Douglas McNeill, an analyst at Astaire Securities, said: "This deal would only be feasible if FirstGroup could show its shareholders that losses at East Coast would be avoided from the outset."
National Express is contracted to pay the Government £1.4bn to run the East Coast franchise until 2015, with annual instalments rising from £85 million in 2008 to £138m this year.
Government transport secretary Lord Adonis has insisted that it will not be willing to agree a deal with National Express over the franchise.
A spokesman for the DfT said: "As we have made clear on numerous occasions, we do not renegotiate franchises."
National Express is expected to launch a £400m rights issue to firm up finances, although it is unlikely to win shareholder approval until it sorts out its troubles. First declined to comment on the bid. Any move to buy National Express would further consolidate its position as the UK's biggest transport firm.
It has not been immune to the downturn, however. It said in March that it is planning to cut costs by more than £200m across its transport businesses.
