National Express heading for buffers after derailed bid?

The bid – led by private equity group CVC and the Spanish Cosman family, which already owns 18.5% of the firm – was due to be formalised today, but was unexpectedly withdrawn at the eleventh hour.

The failure of the bid marks the end of a summer that National Express’s directors, employees and shareholders would probably prefer to forget. It’s expensive, pre-recessionary deal to run the East Coast Main Line route came a cropper when the downturn hit revenues, costing it £20m in the first six months of 2009 alone. It’s now been stripped of the franchise (or handed it back, depending on who you believe) five years early.

What’s more, chief exec Richard Bowker threw in the towel shortly afterwards and has yet to be replaced, and a costly acquisition spree back in the boom days has left it saddled with a hefty £1bn of debt. Hardly the best way to run a railway in a downturn.

So what put the kybosh on the rescue attempt so late in the day? No-one seems quite sure, although doubts over the refinancing of that debt pile seem to have had something to do with it. Especially a £490m loan due to mature next September.

It must have been pretty bad, whatever it was, as the bidders had already got fairly advanced plans to break up National Express and hive off its various constituent businesses to other operators. And as well as leading the failed bid, the Cosman family are National Express’s largest shareholder, so the 30% drop in the group’s share price will hit them hard.  

The whole episode leaves National Express in a bit of a pickle, although the board has issued a statement expressing confidence in the group’s future, and indicating that it will now look to a £350m right issue in the next week or so to share up its finances.

None of this is likely to have much effect on rail services or the ‘customer experience’ at least in the short-term, as the government has pledged to re-nationalise the East Coast route as and when required. But it does provide an object lesson in the downside associated with our free-market approach to transport infrastructure.  

Private sector involvement is supposed to shift risk off the public balance sheet, but when things go pear shaped it can, as in this case, have exactly the opposite effect – and at just the time when the nation can least afford the additional expense as well. We’re not saying that a return to the bad old days of BR is the answer, but it does make you think.