LONDON FirstGroup (FGP.L), said on Friday it had agreed to buy Laidlaw International LI.N, the U.S. company that runs Greyhound buses, for $2.8 billion (1.4 billion pounds) plus debt.
FirstGroup said it would pay $35.25 for each Laidlaw share, in a deal that will also make it the largest operator of yellow school buses in the United States.
"FirstGroup's acquisition of Laidlaw will considerably enhance the group's existing activities in North America, which themselves have grown strongly since we first invested in the U.S. in 1999," said FirstGroup Chief Executive Moir Lockhead.
Shares in FirstGroup jumped 6.3 percent to 596 pence by 10:45 a.m., making it the biggest gainer among midcap companies and valuing the firm at about 2.4 billion pounds.
Analyst Damian Brewer at JP Morgan said the deal looked good value, but added: "A flag-waving political reaction to foreigners buying iconic Greyhound remains a risk."
Founded in 1914, Greyhound serves more than 3,100 destinations with 16,000 departures across North America each day.
FirstGroup runs more than one in five of all local bus services in Britain and carries 2.8 million passengers a day.
FirstGroup will pay about $2.8 billion for Laidlaw's shares and will take on about $800 million of debt. It will partly pay for the deal by placing shares to raise 200 million pounds.
Brewer said the valuation of 7.7 times core profit looked good when set against Doughty Hanson's acquisition of Spanish bus business Avanza last December at over 12 times core profit.
FirstGroup is already one of the biggest operators of student buses in the United States after it bought Ryder Public Transportation Services in 1999 for $940 million, and newspapers said the latest deal could create competition issues.
But CEO Lockhead told reporters: "It's a massive market and it's massively competitive." He said after the deal, the group would operate 63,000 school buses out of about 450,000 in the United States.
The Financial Times also said the International Brotherhood of Teamsters, which represents school bus drivers, had vowed to oppose the deal.
"We get on very well with the trade unions here and in the United States, and I don't expect any problems," said Lockhead.
FirstGroup said it expected the acquisition to generate about $70 million of annualised pre-tax cost savings and to boost earnings, both in the first full year of ownership.
"I don't see any job reductions out in the field, and we'll probably need more as we aim to expand," said Lockhead.
Half of the savings will come from taking Laidlaw off the New York Stock Exchange, with further savings from administration cuts and from using its added weight to drive down prices for new buses, he added.
(Additional reporting by Mark Potter in London and Jonathan Stempel in New York)