* FirstGroup says "significant logic" in combination
* Combination would create a giant in Europe, United States
* All-share approach made June 19, no certainty of firm bid
* National Express shares up 9 percent, FirstGroup down 1.1 percent
(Adds further analyst comment)
By Matt Scuffham and Paul Hoskins
LONDON, June 29 (Reuters) - British transport group National Express rejected a bid approach from larger rival FirstGroup to create a global giant ferrying millions of American school children and British commuters each day.
National Express shares were up 9 percent to 300 pence by 1500 GMT, while FirstGroup was down 1.1 percent at 366.75 pence.
FirstGroup, which operates Greyhound buses in the United States and ranks itself as the world's leading transport company moving more than 2.5 billion passengers a year, said on Monday that National Express had turned down an all-share approach.
The two British bus and rail operators between them operate some 75,000 yellow school buses in North America or 14 percent of the 533,000 buses that FirstGroup estimates carry children to school in Canada and the United States.
National Express said the advance by its rival, made on June 19, was highly preliminary and on unspecified terms and said an internal overhaul currently underway meant it did "not consider it appropriate" to enter talks with FirstGroup.
The approach was made two days after National Express agreed a deal with banks to delay tightening terms attached to its loans for six months, giving it time to explore ways to cut its 1.2 billion pounds ($2.0 billion) of debt.
Analysts said FirstGroup's move was "opportunistic" in light of National Express's financial position and was unlikely to be the precursor to a wave of consolidation across the sector.
As well as its American school bus operations, National Express also carries 320 million bus passengers a year in Britain and transports 164 million passengers on British train services such as East Coast, East Anglia and Stansted Express.
FirstGroup ranks itself as Britain's biggest bus and rail operator, carrying millions of people a day on buses in cities from London to Aberdeen and on train routes such as First Great Western, First Capital Connect and First ScotRail.
In North America it carries 4 million students a day to school while its Stagecoach network serves 3,100 destinations.
"OPPORTUNITY KNOCKS"
Despite being rebuffed, FirstGroup said it continued to believe there was "significant industrial and commercial logic in a combination of the two companies".
Based on Monday's share price rises the two companies would have a combined market value of about 2.2 billion pounds, with FirstGroup accounting for about 80 percent of that.
Astaire Securities analyst Douglas McNeill said the timing would not be ideal for FirstGroup given its efforts to pay down its own debt of 2.5 billion pounds.
"To take on National Express's debt burden as well would represent a departure from that policy," he said. "On the other hand, opportunity knocks at a time of its own choosing and here's an opportunity to expand significantly in both the UK and U.S."
One analyst, who asked not to be named, played down the prospects of a potential deal kicking off further M&A activity amongst transport companies.
"I think it would be difficult. There's lots of regulatory impediments and market share issues and, in most cases, the companies' balance sheets and capital structures are such that they wouldn't look to do it," the analyst said.
Shares in National Express have lost over 40 percent of their value since the start of the year on investor concerns about its debt and falling passenger growth at its key East Coast rail route between London and Edinburgh.
National Express pays a premium to run the line but the government has refused to renegotiate the terms, which are the most expensive in the industry."
"Its East Coast franchise is heading for massive losses and it is massively indebted," said Panmure's Cooke, adding National Express could look to give up the franchise if it cannot renegotiate the terms. (Editing by David Cowell and Dan Lalor) ($1 = 0.6076 pound)