And bosses at the ailing company knew as far back as December 2007 that they would have to sell after their profits were wiped out by the city's fierce 'bus wars'.

The revelations appear in evidence to the Competition Appeal Tribunal in Stagecoach's appeal against the decision of the Competition Commission last year.

In submissions given by Rhodri Thompson QC, for Stagecoach, it is revealed that Preston Bus received offers from both Arriva and Go Ahead before the takeover, with Arriva making an offer to Preston Bus in summer 2008.

"But that fell through I think because of problems in what is known as the data room," Mr Thompson told the hearing. "There was insufficient information and there was obviously this problem over the pension deficit."

He added: "Then in relation to Go Ahead... I think what happened here was simply that Go Ahead's offer was less good than Arriva's and so it was never really pursued by anybody."

The company was taken over by Stagecoach in January last year in a deal reportedly worth £6.4m. But the Competition Commission launched an investigation and in November last year ordered Stagecoach to sell Preston Bus.

According to a summary of evidence presented to the tribunal, the bus wars saw Preston Bus lose a quarter of its passengers on the four routes on which Stagecoach were competing and around 15% of passengers across the whole network.

Within "five or six months" the company had gone from making profits of 2% to making losses which increased "month by month".

The evidence revealed: "There could have been the option of the two operators learning to live with each other, but this would not have been easy for Preston Bus Ltd because its profit levels were not good and it had a large depot to support.

"However, Preston Bus did not try to scale down operations because it did not want to show any signs of weakness, which might result in a scaling-up of operations by Stagecoach.

"Preston Bus had fallen into loss within five or six months. The overall effect of this on costs was a five per cent increase, but the additional costs did not result in additional revenue and this took place at a time when fuel costs escalated.

"The situation had stabilised by Christmas 2007. Although at that time Preston Bus management realised they would probably have to sell the business they still hoped that Stagecoach would pull back or that the Traffic Commissioner would act."