Stagecoach, the bus and train company run by Brian Souter, today confirmed that it had written to the board of National Express on Friday night, proposing an all-share merger with its embattled rival.

Stagecoach said the letter came at the invitation of National Express.

Any deal is dependent on the support of the National Express board since Stagecoach is unable to make a hostile bid until March next year after it announced on September 3 that it would not make an offer in its own right to buy the company.

Stagecoach had been part of a consortium including CVC and the Cosmen family that had approached National Express but which last week walked away from a deal to buy the transport group.

National Express issued its own statement today confirming that it had received the letter which it described as a "highly preliminary proposal".

It said it was an all-share offer and would leave National Express shareholders with only 40 per cent of the company.

It also said that Stagecoach had confirmed that it would need further work to determine the precise share-exchange ratio and the extent to which equity would need to be issued and which assets would need to be disposed of.

National Express said it wanted to "rapidly conclude this phase of potential corporate activity to avoid further disruption to the business" but added: "The board will carefully consider the Stagecoach proposal whilst continuing to progress its equity funding plans in order to assess whether the Stagecoach proposal offers greater value and certainty to National Express shareholders."

It also said that First Group, a third bus and train operator, had made no further offer since withdrawing its bid on July 22.

National Express ran into difficulties this year when it was forced to give up the prestigious East Coast Mainline rail franchise.

The company, which also operates the East Anglia rail franchise and numerous bus routes, is looking to raise an estimated £300 million from a rights issue by the end of this year to help it to reduce its £977 million debt burden.

The transport group is expected to hold a board meeting today to discuss the Stagecoach offer and whether to go ahead with the £300 million rights issue.

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