National Express. The bad parts make the good cheap.
The family that sold Alsa to National Express wants to buy the group. A valuable Spanish coach business sits inside a heavily indebted company, and the struggling parts help set the price.
THE GIST ON NATIONAL EXPRESS: "The Discount"
What is keeping the group valuable?
National Express bought the Spanish coach company Alsa about 20 years ago. Alsa now makes more profit than anything else in the business. At the same time, the group has accumulated £1.1 billion of debt and has been selling assets, including its American school-bus business.
The Spanish family that sold Alsa now wants to buy the group. The attraction is getting the good company back from inside the troubled one.
How can a seller end up buying the buyer?
You pay the seller in yourself. National Express did not simply hand over cash for Alsa. The deal gave the family shares and a seat on the board. As the British side struggled and the shares became cheaper, the family could buy more.
That creates a peculiar position: the people who know the profitable business can build their stake in its owner while the less successful parts drag the overall price down.
Where does the discount come from?
The British coaches lose money and the debt sits on top. Together, they reduce what a buyer must pay to reach the valuable Spanish operation. The worse parts make the best part cheaper to acquire.
The company's price is set by its worst parts and its value by its best. Owning a good company inside a struggling one can be an excellent position, provided the bad company fails slowly enough for you to buy the whole thing.
Would you buy a good business inside a struggling group?
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Quick answers
What is Alsa?
The Spanish coach company National Express bought about 20 years earlier, now the most profitable part of the group in Huw's account.
Why might the former owners want the whole group?
Buying the indebted group offers a way to regain the profitable Alsa business at a price reduced by the struggling operations around it.
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