FirstGroup to buy Greyhound bus firm

LONDON (Reuters) - Britain's biggest bus company, FirstGroup Plc FGP.L, has agreed to buy Laidlaw International Inc. LI.N, the U.S. company that runs Greyhound buses, for $2.8 billion, the companies said on Friday.

FirstGroup will pay $35.25 for each Laidlaw share in a deal that will make it the largest operator of yellow school buses in the United States. The price represents an 11 percent premium over the closing price of Laidlaw shares on Thursday.

“FirstGroup’s acquisition of Laidlaw will considerably enhance the group’s existing activities in North America, which themselves have grown strongly since we first invested in the U.S. in 1999,” FirstGroup Chief Executive Moir Lockhead said.

Shares of FirstGroup jumped more that 6.5 percent to 600 pence on the London Stock Exchange before dropping back to 591 pence, up 5.35 percent, making it the biggest gainer among midcap companies.

Laidlaw shares were up $2.83, or nearly 9 percent, at $34.55 in morning trade on the New York Stock Exchange after rising as high as $34.75 earlier in the session.

Analyst Damian Brewer of JP Morgan said the deal looked good value but added, “A flag-waving political reaction to foreigners buying iconic Greyhound remains a risk.”

Founded in 1914, Greyhound serves more than 3,100 destinations, with 16,000 daily departures across North America.

FirstGroup runs more than one in every five local bus services in Britain and carries 2.8 million passengers a day.

GOOD VALUE

FirstGroup will pay $2.8 billion for Laidlaw’s shares and assume $800 million of Laidlaw debt. It will partly pay for the deal via a 221 million pounds ($430.4 million) placing of 10 percent of its shares at 260 pence a piece.

Dealing in the new shares will begin on February 14.

Brewer said the valuation of 7.7 times core profit looked good when set against Doughty Hanson’s acquisition of Spanish bus business Avanza last December at over 12 times core profit.

FirstGroup became one of the biggest operators of school buses in the United States when it bought Ryder Public Transportation Services in 1999 for $940 million. Newspapers said the latest deal could create competition issues.

But Lockhead said, “It’s a massive market, and it’s massively competitive.” He said that after the deal, the group would operate 63,000 school buses out of about 450,000 in the United States.

The Financial Times said the International Brotherhood of Teamsters, which represents school bus drivers, had vowed to oppose the deal.

“We get on very well with the trade unions here and in the United States, and I don’t expect any problems,” said Lockhead.

FirstGroup said it expects the acquisition to generate about $70 million of annual pretax cost savings and to boost earnings, both in the first full year of ownership.

“I don’t see any job reductions out in the field, and we’ll probably need more as we aim to expand,” Lockhead said.

Half of the savings will come from taking Laidlaw off the New York Stock Exchange, with further savings from administration cuts and from using FirstGroup’s added weight to drive down prices for new buses, he added.

In morning trade on the New York Stock Exchange, Laidlaw shares were up $2.83 or 8.9 percent at $34.55, after reaching a high of $34.75.