US Stagecoach back via £101m deal

Stagecoach chief executive Sir Brian Souter has revisited one of the Perth-based transport group's most humbling investments with the acquisition of large parts of his former Coach USA operation in North America. Stagecoach is to pay up to £101 million for nine businesses belonging to Coach America, seven of which it previously owned. Sir Brian said: "Our North American division is the fastest growing part of the group and this transaction will allow us to acquire selected businesses and vehicles at attractive prices in markets and regions we know well. "These businesses will benefit from both our management expertise and ability to invest for growth." The bus and train group was badly hit when its 1999 acquisition of Coach USA for £1.2 billion turned sour. The deal left Stagecoach taking millions of pounds in losses and cost two chief executives their posts. The group eventually offloaded the bulk of the business. This included the sale of its south central and west region units to private equity house Kohlberg in 2003 for £94m.This formed the basis for Coach America. Having rebuilt its presence in the US through the expansion of its Megabus budget coach network, Stagecoach has agreed to pay $134.2m (£85m) in cash to buy back much of the business it sold to Kohlberg. This will add 800 vehicles to the 1900 Stagecoach already runs in North America. Coach USA has the option to sell Stagecoach as many as another 85 coaches for up to $25.6m. A Stagecoach spokesman said it is a "quite different business" to that sold in 2003 because at that point Stagecoach had to bundle together a package of both underperforming and strong units. Coach America has been operating under Chapter 11 bankruptcy protection since January 2012. This has allowed Stagecoach to cherry-pick the businesses it wants, which together account for around a third of Coach America's turnover. The businesses being acquired include contract, line-run, charter and sightseeing operations. The units in San Antonio and Dallas, Texas and Sacramento and Anaheim in California will be integrated into Stagecoach's rapidly expanding Megabus network. The other businesses in Atlanta, Georgia; Cleveland, Ohio; Gillette, Wyoming; Elko, Nevada; Hanover, Maryland; and Portland, Oregon will continue to operate under local brands. The Cleveland and Portland businesses were not previously owned by Stagecoach. Sir Brian said: "We see significant potential to roll-out megabus.com's successful package of low fares and high quality service to new locations in the United States. "The acquisitions in Texas and California in particular will give us an extended geographic footprint to accelerate our growth strategy for the brand, which already covers around 80 key locations in North America." When Stagecoach initially launched Megabus in the US in 2006 it set up an operation in California but soon decided to focus on the north east of the country. David Pitura, analyst at JP Morgan Cazenove, said: "Coach America currently owns a significant number of the businesses that Stagecoach (through Coach USA) used to own – and some that it did not. Given the previous ownership, Stagecoach should have a good working knowledge of these businesses." Stagecoach has handed over a $16m refundable deposit and will pay with existing bank facilities. A US bankruptcy court will decide next week whether to approve the deal. Last year Stagecoach took $529.4m in revenue from North America, generating operating profit of $45.4m. The business being added made $164.4m in revenues with operating profit of $13.3m. Sir Brian will be banking on a very different experience to a decade ago when Coach USA struggled in the face of an economic downturn in the US, exacerbated by the impact on the 2001 World Trade Centre attacks on demand for transport services. That foray into North America cost chief executives Mike Kinski, followed by Keith Cochrane, their jobs. Mr Cochrane is now chief executive of Glasgow-based engineering company Weir Group. Meanwhile Sir Brian, Stagecoach's co-founder, returned to frontline duties and remains Stagecoach's chief executive.