DEBT-laden East Coast Main Line operator National Express has been approached about a possible merger by rival firm Stagecoach.

National Express, which is due to hand the loss-making East Coast franchise back to the Government by the end of the year, has been a takeover target for months, with debts of nearly £1bn.

It had been contracted to run the franchise until 2015, but its expensive bid hit the buffers as passenger growth stalled and the rail line lost more than £20m in the first half of this year.

Stagecoach yesterday confirmed it had approached the rival operator about a possible merger after last Friday’s news that National Express suitors – led by its largest shareholder, the Spanish Cosmen family – had withdrawn from £765m takeover talks.

Stagecoach – the operator of South West Trains and East Midlands Trains – had been lined up to take on National Express’ UK rail business, not including the East Coast Main Line, as well as bus services, under the plans drawn up by the Cosmens and buyout firm CVC.

A merger would mark a Uturn for Stagecoach, which had previously ruled itself out of bidding alone for National Express.

Stagecoach said it submitted a letter last Friday outlining aims for a deal that would see National Express take up to 40 per cent of the merged group, estimated to be worth £1.7 bn.

It claimed to have been invited by the National Express board to make the move.

Backing from the National board will be key to any deal, as Stagecoach is prevented from making an offer without the group’s recommendation for six months under City takeover rules, following its decision to walk away from a standalone bid last month.

However, the Stagecoach proposal appeared to have received a lukewarm response from National Express.

It said it would “carefully consider” the proposal, but added: “It is now necessary to rapidly conclude this phase of potential corporate activity to avoid further disruption to the business and to allow the group to secure additional equity funding before the end of this year.”

The group also denied any approach had been made from FirstGroup, reported at the weekend to be mulling a takeover move.

National Express has 43,000 employees worldwide, in its rail, bus and coach services divisions.

Perth-based Stagecoach has a bus operation that employs 18,000 people and runs 7,000 buses and coaches around the UK.

Its rail business also operates East Midlands Trains, with main line train services running to London St Pancras, as well as regional rail services in the East Midlands area and services between Norwich and Liverpool.

The group’s Virgin Rail joint venture runs services on the West Coast long-distance mainline, while Stagecoach also has a coach business in the US employing 4,400 staff.