Management & Operations

Stagecoach sheds Coach USA units

Posted on January 1, 2003

Scotland-based transport group Stagecoach is to close or sell much of the Coach USA business it bought in 1999. The company wrote down the value of Coach USA by $800 million when announcing its half-yearly results in early December. Company founder Brian Souter, who returned to day-to-day control of the ailing group as chief executive, said the rationalization will focus on the company’s leisure interests and take place over the next 12 to 18 months. Industry observers anticipate several thousand job losses. Among the businesses that are likely to be disposed of are taxi and airport shuttle services, sightseeing buses in major cities including San Francisco and New York, group tours, charters and some local transit. Announcing the profit figures and plans to downsize in the United States, new company Chairman Robert Speirs said, “Our objective is to create a smaller but more predictable business in North America with a sustainable earnings profile.” It’s the second write-down of Coach USA since Stagecoach purchased it for $1.9 billion four years ago. In 2001, Stagecoach cut the value by $550 million. It now values Coach USA at less than $600 million. The start of a rationalization process pre-dated the December 4 announcement, with eight Coach USA business units closing down between August and November. Although Souter said he expected to halve the size of Coach USA by the end of 2002, analysts believe it could eventually be cut to a third of its present size and concentrate on the contract and scheduled commuter services that are mostly in the Northeast. Those services generated $348 million in the year ending April 2002, with those in New York and New Jersey performing especially well, yielding 12% margins. In the same period, the charter, taxi and leisure-related services together accounted for $510 million of Coach USA’s $977 million turnover, but margins were disappointing. There was speculation in the U.K. after the announcement that the transit and the Wisconsin-based school bus operations may be sold to rival British companies, as both First Group and National Express were rumored to have shown interest. Stagecoach has done well with commuter rail operations elsewhere, notably in the U.K. and the Pacific Rim. Those operations were key contributors to its better-than-expected results in the six months to Oct. 31, 2002. Prior to the write-down, profits were steady at $111 million. — BRIAN BAKER

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