Oct. 19 (Bloomberg) -- National Express Group Plc said it received a “highly preliminary” proposal from Stagecoach Group Plc for a 1.7 billion-pound ($2.8 billion) all-share transaction in which National Express shareholders would hold no more than 40 percent of the enlarged group.

National Express said it will “carefully consider” the proposal while continuing to progress with its plans for an equity fund raising, it said in an e-mailed statement yesterday. Stagecoach confirmed it submitted a letter to the board of National Express at its invitation, indicating the terms under which it would hold talks on a “possible combination,” it said in a separate statement.

The U.K. rail operator said Oct. 16 it was planning a share sale in the next few weeks to raise cash to pay down debt after CVC Capital Partners Ltd. dropped a 765 million-pound bid the same day. Stagecoach, which had planned to buy some of its rival’s U.K. bus and rail operations had a bid succeeded, said the assets were still attractive at the right price.

“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,” National Express said.

The company said Stagecoach confirmed in its proposal that further work and analysis would be required to determine an exact exchange ratio, the extent to which any equity needs to be issued for cash and “appropriate disposals of businesses.”

‘No Certainty’

“There can be no certainty either that an offer for National Express will be forthcoming or as to the terms of any such offer,” and a further announcement will be made if appropriate, Stagecoach said.

National Express became a takeover target after warning that its East Coast rail route between London and Scotland was running out of cash as the recession hurt demand for long- distance trips. CVC’s withdrawal sparked the biggest decline in the U.K. bus and rail company’s stock for eight years.

To contact the reporter on this story: Ben Martin in London bmartin38@bloomberg.net.

Last Updated: October 18, 2009 19:01 EDT