Control of Laidlaw School Bus Firm Sold to Canadians

Laidlaw Transportation Chairman Michael DeGroote, unable to attract a buyer for his entire company, said Wednesday he has sold his controlling stake in North America’s largest school bus operator to Canadian Pacific for $404 million ($500 million Canadian).

DeGroote, who had wanted to sell Laidlaw whole for an estimated $4.45 billion ($5.5 billion Canadian), said CP’s bid for a 47.2% voting interest was the only offer.

CP President William Stinson told reporters that his Montreal-based diversified transportation company may increase its stake in the fast-growing Laidlaw but there are no plans to change any of its operations.

“It’s one of the great Canadian success stories,” Stinson said. “We don’t tamper with success. We want them to keep doing it the way they’ve been doing it.”

DeGroote, who started the firm 30 years ago and built it into a major force in North American transportation and waste disposal, said his firm had outgrown him.

The company had been the object of takeover rumors for two months since DeGroote said he was interested in selling out. But the high price of purchasing all of the common shares has kept suitors at bay.

“Nobody wanted to touch,” said DeGroote. “Laidlaw is too big, too expensive and too good.”

“There was overreaction. I’m relieved it was sold to a company as respectable as CP,” said First Marathon Securities analyst Steve Garmaise. “There is a buying opportunity at these prices.”

But analysts said Laidlaw can only gain from CP parentage.

“We think they couldn’t find a better partner because of their size and involvement in transportation, and they support the existing management,” said Fred Schilling of Nesbitt Thomson Deacon. “It’s the most suitable candidate.”

Under the agreement, CP will pay $17.92 a share ($22.19 Canadian) for the A-class stock that enabled DeGroote to keep control of the company.

The total price will include a cash payment of $178.1 million ($220.37 million Canadian) and 12 million ordinary shares of Canadian Pacific.

DeGroote, who will remain chairman and chief executive, will hold onto 3% of the voting shares of Laidlaw. DeGroote and Canadian Pacific together will have more than 50% of Laidlaw’s shares.

Stinson, while attracted to Laidlaw as a non-cyclical transportation company with operations in the United States, said he decided against buying it whole because of the cost. CP had revenue of $9.9 billion ($12.2 billion Canadian) last year.

DeGroote said Laidlaw plans to enter the European waste management market in the near future but no negotiations are under way.

While it holds more than 47% of voting rights, CP owns only 12.4% of total equity in Laidlaw.

“CP won’t be interested in 12%,” said Albert Thompson of Prudential-Bache Securities Canada. “That’s not their style. If they had all of Laidlaw or 50% of equity then 10 years down the road Laidlaw will be significant play in CP’s earnings.”

Laidlaw’s earnings are estimated to grow between 25% to 30% a year for the next 10 years.

Canadian Pacific said the purchase will have a minor dilution on its earnings for one or two years.