British firm buys Greyhound owner Laidlaw for $2.8 billion

CHICAGO -- Greyhound looks to be on the go again -- to an uncertain destination.

British bus and train operator FirstGroup PLC announced a $2.8 billion deal Friday to acquire Greyhound owner Laidlaw International Inc., whose business is focused more on its fleet of 40,000 school buses.

If it goes through, the transaction would pair the two largest school bus operators in the United States and Canada and give the combined company 40 percent of the school bus market.

It also may leave Greyhound Lines Inc. in need of yet another new driver.

FirstGroup CEO Moir Lockhead said the deal "will considerably enhance the group's existing activities in North America," namely a 13 percent stake in the North American school bus market. He and other executives were mum about plans for Greyhound, stoking speculation that the historic bus line will be sold.

Analysts suggested that not only are inter-city buses not FirstGroup's core area of expertise, owning Greyhound would risk a negative reaction to an iconic American operation being run by foreigners. One suggested Greyhound would be a better fit with Stagecoach's Megabus USA operations.

Change and uncertainty have been common in recent years for Greyhound, which Naperville, Ill.-based Laidlaw claims to have rejuvenated since emerging from a two-year bankruptcy reorganization and moving its headquarters from Ontario, Canada, in 2003.

Unprofitable routes were eliminated, travel times reduced, terminals overhauled and buses refurbished during a makeover from mid-2004 until early 2006 as the "silver dog" scrambled to compete better with discount air fares and other factors that had eaten away at its share of the travel market.

"A few years ago, the question at Greyhound was 'Will we survive?"' Kevin Benson, president and chief executive of Laidlaw International, at the company's annual meeting Friday in Lisle, Ill. "This past year, it's been 'What's next?'"

Now, he contended, "Greyhound is on the move."

Still, the changes haven't all been received favorably -- or stopped the annual decline in ridership that now is around 20 million after reaching 25.4 million in 2004.

Laidlaw last month reported a lower quarterly profit, citing fewer Greyhound passengers because of fare increases.

A streamlined Greyhound accounted for less than 33 percent of the company's revenue in the first quarter of fiscal 2007, down from 40 percent for all of 2006.

The line still serves 1,700 U.S. destinations, but 1,000 were eliminated during the restructuring, mainly in smaller, rural areas.

"It's not even a fifth the size it was in the early '80s," said Bruce Hamilton, a union leader and driver who has been with Greyhound since 1971. "There's been this downward pressure on our jobs ever since."

Greyhound was founded in 1914 by a Swedish immigrant, Carl Eric Wickman, to transport Minnesota's miners for 15 cents a ride and became a coast-to-coast powerhouse as interstate highways proliferated. Its popularity peaked in the late '60s and early '70s before waning as inter-city bus routes were deregulated, competitors emerged, air travel got cheaper and Americans got richer.

After the Dallas-based operation incurred nearly $140 million losses in 2002-03, the British newspaper The Independent said its proud history had become so tarnished that Greyhound buses had become "the domain of the poor and the weird."

Greyhound disputes that, saying its clientele is younger, better-educated and more well-off than its stereotype suggests.

FirstGroup, Britain's largest bus operator, entered the North American market in 1999 when it acquired Ryder Public Transportation Services Inc.

Under the terms of the deal, which must pass the muster of shareholders and regulators, it has agreed to pay $35.25 a share, 11 percent above Thursday's closing price for Laidlaw. It will also assume about $800 million in debt.

FirstGroup's shares jumped 4.8 percent to $11.45 on the London Stock Exchange. Laidlaw International Inc. shares rose $2.86, or 9 percent, to finish at $34.58 on the New York Stock Exchange, its highest closing price ever.

FirstGroup said it 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.

---

On the Net:

www.greyhound.com

www.firstgroup.com

www.laidlaw.com