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British firm to buy Greyhound bus operator

British transport company FirstGroup PLC said Friday it has agreed to buy Laidlaw International, North America's largest school bus operator and the owner of Greyhound buses, in a $2.7 billion deal.
/ Source: The Associated Press

Britain’s FirstGroup PLC is buying Greyhound bus operator Laidlaw International, which is also North America’s largest school bus operator, for about $2.8 billion.

Under the deal announced Friday has agreed to pay $35.25 a share, 11 percent above Thursday’s closing price for Naperville, Ill.-based Laidlaw. It will also assume about $800 million in debt in the deal.

FirstGroup is Britain’s largest bus operator and already has a sizeable presence in North America.

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

FirstGroup acquired Ryder Public Transportation Services Inc. in 1999. The purchase of Laidlaw would boost its stake in the North American school bus market to 40 percent from its current level of 13 percent, the company said.

Laidlaw generates 84 percent of its revenue in the United States and 16 percent in Canada, with education services accounting for half of the total. Greyhound contributes 40 percent of the company’s total revenue and public transit operations 10 percent.

“The combination of Laidlaw and FirstGroup will bring together well-known brands and ... provide a sound economic and operational base from which to continue many of the efficiency initiatives that we have under way,” said Kevin Benson, president and chief executive of Laidlaw International.

FirstGroup’s shares jumped 4.8 percent to 588 pence ($11.45) on the London Stock Exchange. Laidlaw International Inc. shares rose $2.85, or 9 percent, to $34.57 in morning trading on the New York Stock Exchange after rising to a 52-week high of $34.75 earlier in the session.

FirstGroup expects the deal to generate approximately $70 million in pretax savings in the first full financial year following its completion.

The company plans to fund the acquisition through a bank loan and share issuance.

Standard & Poor’s Ratings Services placed FirstGroup’s short-term credit ratings on watch with negative implications.

“The CreditWatch placement reflects the weak business profile of up to 50 percent of Laidlaw’s operations and the increase in debt leverage required to undertake the acquisition,” said S&P credit analyst Leigh Bailey. “These factors are together expected to dilute FirstGroup’s existing satisfactory business profile and could also pressure credit ratios.”