FirstGroup Acquisition of Laidlaw Complete

Ryan Gray | Senior Editor

For years, First Student and Laidlaw separately leased two school bus depots located a block away from each other in Southern California’s inland empire 60 miles east of Los Angeles.

Laidlaw had contracted with the Riverside Unified School District for about two decades until the school district terminated the relationship in 2006, and Student Transportation of America won the new bid.

But Mike Fine, Riverside’s deputy superintendent of business services and governmental affairs, said STA was without a bus yard because Laidlaw retained the lease, a legal practice. Meanwhile, First Student had operated a special needs contract down the street with the Riverside County Office of Education for 21 different area school districts. Recently, the superintendent’s office opted to return to Laidlaw.

"The attorney general saw this and said, ‘Wait a second. Here you have a new competitor that can’t be successful because of control on property,” said Fine.
In a nutshell, the Riverside example illustrates the scrutiny and intricacies of the Laidlaw acquisition. The school bus industry has had 10 months to ponder the deal, and for existing customers of both, said Dean Finch, the COO of FirstGroup America, there would be “no disruption of service.”

"School boards are rightly concerned about the level of service,” commented Finch in a video interview released on FirstGroup’s Web site. “We’re looking to improve service while lowering costs. This is a fantastic opportunity for growth. I believe we’ve got the best people in that sector to lead it.”

Carey Paster, First Student’s president, echoed Finch’s sentiments that it was “business as usual” at First and Laidlaw sites across North America and added that the company’s focus remains on the children and their safety, a philosophy of “high tech, high touch.”

On Sept. 26 FirstGroup and Laidlaw reached an agreement with the 11 state attorneys general who challenged the merger of the nation’s two largest school bus contractors on the grounds it would substantially lessen competition in numerous school bus markets and drive up prices within those states. Two days later, FirstGroup announced the U.S. Department of Justice would waive the Hart-Scott-Rodino Antitrust Improvements Act. The companies agreed to divest a number of current contracts serviced by approximately 800 school buses, or 3 percent of its total fleet, with potentially more transactions to come.

FirstGroup’s Finch said the acquisition was looking “even better than originally expected” as the figure of divestitures was more than half of what was forecasted when the company announced its intentions on Feb. 9. Stronger than expected cash flows within Laidlaw and FirstGroup led to a lower level of net debt and no further equity was needed. Add to that a falling U.S. dollar against the British pound plus eliminating synergies shared by the two entities and the valuation of the merger rose $200 million to $3.4 billion.

First Student now reports approximately 62,000 school buses, or about 13 percent of the total U.S. school bus fleet of 475,000 and two-fifths of the private school bus contractor market. First Student’s Paster said a face lift of approximately 41,000 Laidlaw buses with a new First Student logo began on Oct. 4. He also added that Laidlaw’s Naperville, Ill., operations would move to First Student’s Cincinnati headquarters.

Shareholders for both Laidlaw and FirstGroup approved the merger on April 20. Since, the United States Surface Transportation Board approved the deal on May 21 as did the Canadian Competition Bureau on June 18. The Committee on Foreign Investment at the U.S. Department of Treasury also issued written clearance under the Exon-Florio amendment over the summer.

FirstGroup previously purchased Ryder Public Transportation Services, which included the 10,000-bus operation of Ryder Student Transportation, in 1999.

Concessions Made
At the heart of antitrust negotiations with the 11 states was the ability of other school bus contractors to be able to compete with the new First Student. Even before the merger, both First and Laidlaw held the advantage of operating wider margins and being able to offer cost advantages to school districts that smaller companies couldn’t, especially with continued industry concerns over high fuel prices. The new company holds a substantial advantage in procurement power as it can now boast one of the largest retail fleets in America when also taking into account Greyhound and the transit and paratransit business it picked up from Laidlaw Inc.

Then there were complications from the aforementioned bus facility issue at many districts like Riverside. The states feared the deal might preclude all the smaller contractors from competing and would effectively close any open bid process. Some states also feared that existing school district customers of either First or Laidlaw would be unable to revert to owning and operating their own fleets, or the ability to do so would be seriously hampered.

"(The) settlement will help ensure that our schools benefit from competitive bidding after these companies merge,” said Jonathan Mark, an assistant attorney general with the Washington state Attorney General’s Antitrust Division, one of the states involved in the settlement negotiations. “Laidlaw and FirstGroup are the major school bus operators in Washington and compete heavily for district contracts. The agreement creates opportunities for additional companies to do business in Washington.”

Other state attorneys general who signed off represented Alaska, California, Connecticut, Illinois, Massachusetts, Maine, Minnesota, Missouri, New Jersey and Rhode Island. First and Laidlaw also agreed to pay $1.1 million to reimburse all 11 states for their investigations.

For more on the new First Student, visit www.stnonline.com/go/8

Integration of the Deal
FirstGroup cited the following consolidation of competencies between the two companies as potentially saving $70 million per year.
• Removal of Laidlaw ‘plc’ costs (listing costs, SOX)
• Corporate office consolidation
• Regional administration consolidation
• Insurance premiums
• Maintenance costs
• Facility costs: branch consolidation
• Operating payroll
• Driver development
• Procurement
• Further operational efficiencies to come

Leading the New First Student
• Dean Finch, COO, North America
• Mark Lawton, CFO, North America
• Doug Carty, Commercial Director, North America
• Carey Paster, President, First Student
• Michael Murray, President, First Transit
• David Leach, President, Greyhound
• Everton Bryan, President, Services

Source: FirstGroup.com