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Stagecoach gambles on U.S.
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October 18, 1999: 2:07 p.m. ET
U.K. company sees $25B segment of bus market as ticket to growth
By Staff Writer Doug Cameron
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LONDON (CNNfn) - With the sound of a thousand slot machines still ringing in their ears, the weary gamblers trooping off the bus from Atlantic City at New York's Port Authority terminal are unwitting accomplices in the latest European-inspired push into America's heartland.
The rapid expansion of gaming in the United States forms an unlikely centerpiece to the expansion plans of Britain's Stagecoach Holdings. Europe's largest diversified transport company is leading a push by British companies to transform a fragmented U.S. coach market which generated total sales of $40 billion a year.
Stagecoach has earmarked a $1 billion war chest to expand its U.S. coach operations after building a beachhead with the $1.24 billion acquisition in July of Houston-based Coach USA, the country's largest bus charter business. The company is targeting the $25 billion a year segment of the industry that excludes the school bus market.
British business legend
The Stagecoach story is already etched in British business legend as a tale of opportunism and no small amount of controversy, with all roads leading to the company's unconventional chairman, Brian Soutar.
Soutar, together with his sister Ann Gloag, is credited with building up the company in just 15 years from a one bus operation to a powerhouse with a market value of 2.6 billion pounds ($4.4 billion). Eschewing business suits for trademark bright waist coats and red Kicker boots, Soutar has cut a dash through the U.K. transport sector with interests in buses, trains and airport operations.
Stagecoach's Souter seeks U.S. ties
The U.S. expansion sits next to existing overseas operations in Asia and Sweden, but marks by far the company's largest bid to expand out of the maturing U.K. market.
Bad timing
Stagecoach executives have embarked on a month-long investor road show supporting a $400 million international share offering to fund the Coach USA buy and future deals.
The road show comes against the background of a limp performance by Stagecoach shares which, together with the rest of the transport sector, have under-performed the FTSE 100 index in London. Stagecoach lost its place in the benchmark index at the start of October.
The timing could not have been worse -- in the wake of the London rail disaster on Oct. 5. While neither train involved in the crash was operated by Stagecoach, its status as the U.K's largest rail operator will inevitably focus attention on the commercial cost of improving the system's safety record.
Keith Cochrane, the amiable Stagecoach group finance director who presents a more conventional business face to investors, accepts that selling the offering will not be an easy task. "These are not sexy businesses. They don't have the glamour of telecoms or the Internet, but they are predictable," he said in an interview with CNNfn.com.
Cochrane said Stagecoach stock has weakened because of broader sector trends, but insists the fundamentals of the business both in Britain and overseas remain strong.
The planned share offer, which includes a U.S. private placement, is expected to lift the proportion of non-U.K. shareholders in the company from 6 to 9 percent.
Building a U.S. platform
Soutar's sartorial style stands in stark contrast to the soberly-suited Larry King, former chief executive of Coach USA and the U.K. firm's U.S. chief.
King is charged with maintaining the acquisition policy that saw Coach grow into a $800 million a year operation through 70 acquisitions over the past two years.
King's wardrobe may clash with Soutar's, but like his boss he is credited by analysts with having an encyclopedic knowledge of his own transport market.
King said the U.S. bus market is ripe for consolidation. He notes that the top 10 operators of the non-school bus segment have a domestic market share of less than 12 percent combined, and only three have more than 1,000 buses. The balance is split between more than 5,000 participants.
King identifies the market for transporting gamblers to glory or despair -- the fastest-growing business segment, with sales rising at 20 percent a year -- as a key driver. The burgeoning sightseeing market, particularly for seniors, is also being pursued alongside the urban transit market, as cities and states increasingly look to privatize or outsource services.
Hundreds of targets in the U.S.
King said the company is considering 240 target firms with combined annual revenue of $3 billion, opportunities which he said Coach USA had passed up because of lack of funding.
He cited the Northeast, Washington D.C. and New Orleans as first ports of call, and noted the advanced state of privatization plans in Colorado, California and Boston.
King said that while the company has rights to the Stagecoach brand in the United States, it is unlikely to seek to roll it out as a national brand, as it has in Britain.
Moreover, he said the fragmented nature of the U.S. market will make Stagecoach unlikely to run into any regulatory problems.
Soutar's U.K. operation has faced fierce criticism for its alleged "steamroller" tactics in using its market strength to drive out smaller competitors.
All this will mean nothing to the merry gamblers who, King noted, are advised to buy return tickets in case their pockets are empty on return. He said the buses tend to lack a party atmosphere when they roll back, with gamblers often subdued. "They're sleeping, usually," said King. 
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Stagecoach
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