Two major British bus and rail operators are set to compete in the US long-distance coach market after FirstGroup on Friday announced plans to buy the owner of iconic Greyhound buses and, separately, it emerged that Stagecoach planned to expand its US venture.
FirstGroup, the UK’s largest bus and rail operator, confirmed it had agreed an all-cash offer for Laidlaw International, which – as well as owning Greyhound – is North America’s largest private school bus operator, for $3.6bn.
More than half the combined group’s revenues and profits will come from the US and Canada.
However, Stagecoach is understood to be planning to expand its inter-city Megabus.com operation – already operating widely in the UK and experimentally in the Chicago area – across continental US, in competition with Greyhound.
The company is currently barred by the terms of disposals it made in 2003 from launching new operations in some markets, but those restrictions expire in about 18 months. The new operation would be franchised out to local operators, run under a common brand and probably focused on important regional centres.
Stagecoach would say only that it was not afraid of competition from Greyhound.
“In terms of Megabus.com in North America, we’ve been delighted with its success,” it said.
While Greyhound is Laidlaw’s best-known brand, the takeover was mainly aimed at lifting FirstGroup – currently the number-two school bus operator – into North America’s largest. The combined group will own 63,000 of the US’ 150,000 privately operated yellow school buses – nearly five times the next biggest operator.
School buses provided about half of Laidlaw’s $3.1bn revenue in the year to August 31 last year, with Greyhound providing 40 per cent and transit services 10 per cent.
The $35.25 per share deal values Laidlaw’s shares at $2.9bn, with the rest of the purchase price going to repaying Laidlaw’s debt. FirstGroup’s shares rose 34½p to 595½p, a 12-month high.
The deal will be financed by new debt of $3.75bn (£2bn) and £375m of new equity issues. Some £200m of shares were placed on Friday at no discount to the prevailing share price, while another £175m will be raised on completion of the deal, probably through a rights issue.
Moir Lockhead, FirstGroup chief executive, predicted $70m of annual cost savings as a result of the deal – partly as a result of no longer complying with onerous new US listing rules.
Analysts generally welcomed the deal, saying it made strategic and financial sense.