The Stagecoach (LSE:SGC) share price surged by double-digits following the announcement of a potential merger with National Express. The recent 27% jump in the stock has pushed its 12-month performance to just under 130%.
The merger behind Stagecoach’s share price rise
On Tuesday morning, the board of National Express confirmed it was in active discussions with Stagecoach about combining the two businesses into a single entity. Under the preliminary proposal, the merger would be performed as an all-stock deal.
Should the merger go ahead, Stagecoach shareholders will receive 0.36 new National Express shares for each share owned. Based on the Stagecoach share price before its recent rise, this offer roughly translated into an 18% premium.
Both companies have agreed that the merger could lead to substantial cost savings and growth synergies that would benefit all stakeholders. Specific highlights were the ability to use each other’s depot networks, improved route planning, and elimination of redundant assets.
Both National Express and Stagecoach are leaders within the UK transport and logistics industry. As a consequence, this merger could have some regulatory hurdles to overcome. After all, it’s possible that anti-monopoly concerns are raised by the courts, thus preventing the transaction from taking place.
However, before this risk can be assessed, shareholders of both companies need to give the green light. Currently, the discussions between the management teams are still ongoing. And it remains entirely possible that no satisfactory agreement is reached. If the merger fails, the stagecoach share price will likely suffer as the recent gains are reversed.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.