The deal will bring together two of the most controversial train operators in the country. Both have come under fire from passengers for their poor service.

The £158m deal will consolidate Stagecoach's strong position in the rail market. It now has a string of rail franchises and owns Porterbrook, one of the UK's three major train leasing groups.

All clear

Competition and Consumer Affairs Minister Kim Howells announced he would not refer the deal to Monopolies and Mergers Commission (MMC), the UK competition watchdog.

However the MMC has imposed strict conditions on Stagecoach. It will have to follow tighter rules between Porterbrook and the train operating companies.

Virgin Rail operates the Cross Country and West Coast train franchises. Stagecoach operates the South West trains operation.

Virgin was considering floating its train service on the stock market before Stagecoach offered to buy a 49% stake in the group.