* Says equity fund raising by year-end is main focus
* Sees 2009 profit lower than 2008 level
* Says still mulling Stagecoach merger approach
* Shares down 3 percent by 1044 GMT
(Adds company, analyst comment, updates shares, details)
By Rhys Jones
LONDON, Oct 22 (Reuters) - Transport operator National Express will press on with preparations to raise cash by selling shares to cut its debt load while it evaluates whether a merger with rival Stagecoach is a better option.
The company also warned on Thursday that its full-year profit would be below last year's.
"We're working on our primary focus of an equity funding, and in parallel it's the right thing for us to do to see if the Stagecoach proposal offers alternative or better value for our shareholders," Finance Director Jez Maiden told reporters on a conference call following the group's third-quarter trading update on Thursday.
The bus and rail operator was approached by Stagecoach about a possible merger earlier this week after previous suitors Spain's Cosmen family and private equity partner CVC Capital Partners pulled out last week.
National Express is now discussing the possibility of an all-share merger with Stagecoach, valued at up to 2 billion pounds ($3.3 billion) by analysts.
"We received a highly preliminary approach from Stagecoach, which we are evaluating, and as part of that process we are asking questions and for clarifications from them," said Maiden.
The Cosem-CVC consortium had approached National Express with a proposed 765 million pound offer worth 500 pence per share, an improvement on a previous 450 pence proposal.
"An offer of 5 pounds a share from Stagecoach would probably be looked at closely, but a rights issue looks more likely than a merger at the moment," said Shore Capital analyst Karl Burns.
National Express said third-quarter group revenue in sterling terms was 1 percent lower than the prior year period and forecast that its pretax profit for the current year would be slightly below its previous expectations.
It reported a 2008 pretax profit of 202.4 million pounds.
National Express, whose shares have risen a third in the past quarter on persistent takeover speculation, were 3 percent down at 403 pence by 1044 GMT, while Stagecoach shares were up 0.2 percent at 159.8 pence.
"Our past concerns on trading seem to have been justified. Consensus estimates are likely to fall, and we cannot rule out further downgrades," said Arbuthnot analyst Gerald Khoo.
The group, which remains without a chief executive, said it had been hit by reduced profitability in North America but that its British and Spanish operations continued to perform well.
Shore Capital expects National Express's pretax profit for 2009 to come in at around 115 million pounds, versus an average Thomson Reuters I/B/E/S forecast of 105.68 million pounds.
If the fund raising is successful its lenders will push back the maturity date of its 540 million euro debt facility from September 2010 to March 2011, allowing it to refinance its other 800 million pound credit facility.
National Express needs a rescue rights issue to help pay down 977 million pounds of debt and will ask shareholders for up to 400 million pounds in a rights issue, analysts have said.
National Express is this week expected to ask Stagecoach to show how it will secure the 2 billion pounds in debt facilities that a merged group would need, to provide answers relating to competition issues and a due diligence timetable. (Editing by James Davey/Will Waterman) ($1=.6045 Pound)