You Can’t Merge Into the Bus Lane: Another CMA intervention
February 19, 2022
2 min read
What's going on here?
On Wednesday 26 January the Competition and Markets Authority (CMA) intercepted the proposed £1.9 billion merger between travel giants National Express and Stagecoach.
What does this mean?
The proposed deal between the rival bus groups was initially announced back in December 2021. This deal follows a prior £1.7 billion bid by National Express in 2009 that was rejected by Stagecoach. Both companies were hit hard by the pandemic, with the decreased demand for public transport, so the deal has been welcomed by both parties. According to the parties, the proposed merger would save the companies a combined cost of £45 million each year.
However, following the intervention of the CMA, the deal has been paused pending further investigation. This intervention comes in the form of an initial enforcement order under section 72(2) of the Enterprise Act 2000. An initial enforcement order is a tool used by the CMA at Phase 1 of an investigation where the deal raises competition concerns to prevent parties taking further steps to merge the companies. National Express and Stagecoach will have to wait for the CMA to release them from the initial enforcement order before continuing their merger.
What's the big picture effect?
The proposed merger between these two rivals follows turbulent times within the transport industry. This industry is yet another that has been heavily impacted by the Covid pandemic. The UK lockdown resulted in a decreased demand for public transport such as buses due to business closures and the working from home order. Although the government has been supporting the transport industry during these hard times, this support is due to end soon. The proposed merger between National Express and Stagecoach would therefore help to reduce the losses experienced by the transport giants during the pandemic. This will be important as we move towards a greener public transport sector where investment will be required to keep up with the electric vehicle movement. The combined business would be in a much better position to make such investments with “deeper pockets” so to speak.
The CMA’s intervention in this deal also follows a trend in increased regulatory investigation into mergers and acquisitions (M&A) deals in the wake of the National Security and Investment Act 2021 (to see our article on this legislation, click here). The changes brought by this Act have many predicting an uptick in regulatory intervention throughout 2022. This trend will impact many businesses and the law firms acting for them, in both present and future M&A deals. The new regulations and increased investigations will likely result in increased time and cost. This should be taken into account by law firms when considering completion dates and fee estimates. The freezing of the deal between National Express and Stagecoach is a great example of this as the delay is likely to increase legal fees for the parties.
Moving forward, it is worth monitoring whether the CMA begins a Phase 2 investigation or whether the deal will resume, facilitating greener investment in the public transport sector.
Report written by Nell Pringle
Share this now!