Stagecoach shares have rallied by almost 20% after it revealed talks over a potential all-share takeover by rival National Express.

The potential tie-up would result in cost savings and provide new growth opportunities as the pair recover from the huge hit to business inflicted by the COVID-19 pandemic that saw demand for travel collapse.

It would bring together Stagecoach, the country’s biggest bus and coach operator including Megabus, with National Express – best-known for its UK coach services but which has operations abroad too in the US, Spain and Germany.

Under the terms of the possible deal, Stagecoach shareholders would receive 0.36 new National Express shares for each Stagecoach share they own.

It would give them a 25% stake in the merged group and value Stagecoach at about £445m, a statement to the market said.

The terms under discussion represented an 18% premium on the closing price of Stagecoach shares on Monday.

The stock was 19% up in Tuesday dealings while National Express shares were trading 6% higher on news of the talks though the statement cautioned that there was no certainty of a formal offer.

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Should a deal go ahead, it said that Stagecoach’s chairman Ray O’Toole would chair the combined group while National Express chief executive Ignacio Garat would continue as CEO.

National Express made its approach 12 years after it spurned the offer of a £1.7bn merger from Stagecoach.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said of the potential tie-up: “‘Given that the pandemic blew out the tyres of their business models and it’s been such a slow road back to health ever since, it comes as little surprise that rivals National Express and Stagecoach are now considering getting together to try and shoulder the recovery together.

“Consolidation in the hard hit travel sector has been expected and it appears the bus coach and rail business is ripe for restructure.”

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