After the Cosmen family - CVC Partners bid consortium raised their indicative cash offer on 03-Sep-09 from 450p to 500p a share for National Express Group (NEX LN), the UK bus and train operator, its current 465p share price (or 7.5% spread to the 500p price) reflects the risk of the unmaterialisation of a succesful firm bid from the consortium.

Although the indicative cash offer is conditional on financing and due diligence, we believe the main risk is obtaining shareholder willingness and Board recommendation for the 500p a share offer level. Such a Board recommendation would avert the capital raising/rights issue which the Board and a majority of shareholders were prefering over the initial 450p offer from the bid consortium. We understand that the 500p level (with fewer material conditions attached than the original 450p offer) is now being considered seriously by those (institutional) shareholders who had previously preferred the rights issue and had backed National Express' Board rejection of the 450p approaches. The less conditional 500p bid also seemingly reflects the level that the Board had in mind for possible recommendation when the original offers were tabled much lower (400-450p).

Given the highly likelihood of the company opening its books now to the bid consortium, and recommending the 500p bid, we recommend to buy National Express at 460p levels and realising the 8.5% net spread or an annualised return of 34% -based on a Dec-09 closing assuming a firm public offer or Scheme of Arrangement to complete 2 months after the early October bid consortium's due diligence completion.