Laidlaw International, Inc.

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Laidlaw International, Inc.

55 Shulman Boulevard, Suite 400
Naperville, Illinois 60563
U.S.A.
Telephone: (630) 848-3000
Fax: (630) 579-6438
Web site: http://www.laidlaw.com

Public Company
Incorporated: 1924
Employees: 87,400
Sales: $3 billion (2005)
Stock Exchanges: New York
Ticker Symbol: LI
NAIC: 485210 Interurban and Rural Bus Transportation

Laidlaw International, Inc., is a Naperville, Illinois-based transportation company with three main divisions. Greyhound Services is the United States's only national provider of scheduled inter-city bus transportation services. Laidlaw Education Services operates 39,000 school buses transporting more than two million students, making it North America's largest school bus operator. The third unit, Laidlaw Transit Services, offers both fixed-route municipal bus service and specialized transportation services for riders with disabilities. Laid-law is a public company listed on the New York Stock Exchange.

TRUCKING ROOTS: EARLY 20TH CENTURY

Laidlaw International was founded by Robert Laidlaw as a trucking company in 1924 in Haggersville, Ontario, Canada. While the company continues to bear his name, in reality the man behind its growth was Michael G. DeGroote, who bought Laidlaw in 1958. Born on a farm in Belgium in 1933, DeGroote emigrated to Canada with his parents in 1948, settling in southwestern Ontario and struggling to make a living on a tobacco farm. He soon dropped out of high school to take a job driving a truck to help support his family. He went into business for himself at the age of 18 and was able to raise enough money to buy a surplus army truck, which he used to transport dairy farm manure to area tobacco farmers. Just a year later he bought four gravel trucks and set himself up as a fleet operator. He took advantage of a uranium boom in northern Ontario to become a millionaire by the age of 21. When the U.S. government cancelled its order, however, DeGroote was overextended, the business collapsed, and in 1958, at the age of 25, he was forced into bankruptcy. It was just a temporary setback for the ambitious young man. Before the year was out he relocated to the city of Hamilton, secured a $75,000 bank loan, and bought Laidlaw's Transportation Ltd. for $75,000 down and another $250,000 to be paid over ten years.

DeGroote took over 21 trucks and inherited but a single customer, Toronto's Canadian Gypsum Co. Ltd., a business that generated about $400,000 a year. DeGroote wasted little time growing Laidlaw through acquisitions, proving adept at recognizing hidden value and negotiating an advantageous price. To achieve his goal of realizing 25 to 30 percent growth each year, he acquired scores of small trucking outfits. After ten years he was operating some 200 trucks and generating annual revenues of $5 million. In 1969 he took Laidlaw public, its shares being listed on the Toronto Stock Exchange.

Also in 1969 DeGroote began to expand beyond trucking by acquiring a solid waste management company. In the 1970s he would increasingly focus on waste management and other areas, shifting away from the boom-or-bust trucking industry, which had a tendency to rise and fall with the economy. Garbage, on the other hand, always had to be dealt with. Moreover, in 1972 he achieved some diversity by acquiring a Canadian intercity and charter bus company. In 1978 DeGroote moved into the United States solid waste industry. Another recession-proof transportation business that caught his eye during this period was school bus transport. In 1979 he acquired his first school bus business in Canada. DeGroote remained committed to the trucking business, acquiring Buffalo's Boss-Linco Lines Inc. in 1979. However, when the economy stalled, Boss-Linco floundered, forcing Laidlaw to take a $5.9 million write-off in 1982. Two years later, Laidlaw dropped out of the trucking business entirely.

In the meantime, in 1983, Laidlaw entered the U.S. school bus transportation market and in that same year began listing its shares in the United States on the NASDAQ. The main thrust of the company at this stage, however, remained solid waste management. By 1983 a Laidlaw subsidiary was the fourth-largest solid waste management firm in the United States. DeGroote, however, launched an aggressive bid in the U.S. school bus market. A major deal in this regard was the acquisition in two separate transactions in 1983 and 1984 of Van Nuys, California-based ARA Transportation Inc, operator of 4,500 school buses covering school districts throughout the United States. Laidlaw acquired another 11 bus transportation companies in 1985. As a result, Laidlaw became the largest school bus operator in North America, operating about 11,000 buses in the United States and Canada. Busing also became the biggest contributor to Laidlaw's balance sheet, accounting for half of the company's $550 million in revenues in 1985. Waste disposal accounted for 40 percent, while the soon-to-be-divested trucking segment brought in just 8 percent.

While Laidlaw may have been the largest school bus company on the continent, there was plenty of room for further growth, since the company only controlled about 5 percent of the market in the United States, where approximately 70 percent of the business was done by public contractors. School boards, beset with rising costs, were now looking to turn over busing to private operators like Laidlaw. In addition, small- and medium-sized school bus operators were getting squeezed out of the market by rapidly rising insurance costs. In 1986 Laid-law attempted to achieve a major growth spurt by acquiring Mayflower Group Inc., known for its moving vans but a company that was also heavily involved in school buses, operating 4,500 of them, thus making it Laidlaw next closest rival. The offer was not welcomed by Mayflower, leading to a hostile takeover attempt by DeGroote. Mayflower implemented anti-takeover measures and in the end he backed off.

DEGROOTE SELLS OUT: 1980–1990

In 1988 DeGroote sold his 47 percent controlling stake in Laidlaw to Canadian Pacific for $450 million in cash and stock. He agreed to stay on as CEO and chairman but in June 1990 retired to Bermuda, where the 56-year-old soon grew bored and again turned his attention to the waste management business. He became the head of a new company called Republic Waste Industries, much to the displeasure of many Laidlaw shareholders who questioned how Canadian Pacific could have possibly allowed DeGroote to leave without signing a non-compete agreement. He was later joined by Wayne Huiazenga of Blockbuster Video fame, and the company was renamed Republic Industries. The hazardous waste disposal business was spun off, then through a series of acquisitions ventured far afield and evolved into Century Business Services, Inc., a company that offered outsource business services to small and medium-sized businesses, including accounting and tax preparation, employee benefits, payroll, property and casualty insurance, and consulting.

COMPANY PERSPECTIVES

Laidlaw International, Inc. is a holding company for North America's largest providers of school and inter-city bus transportation and public transit services.

Replacing DeGroote at Laidlaw Inc. (the company having changed its name earlier in 1990) was Donald K. Jackson, a former competitor DeGroote handpicked. It was also in 1990 that Laidlaw gained a listing on the New York Stock Exchange for its Class A and Class B shares. Jackson had founded a Canadian transportation leasing firm, a company like Laidlaw that was involved in both trucking and waste services. He took over Laid-law when it was ripe for a fall, however. After posting a net profit of $215 million in fiscal 1990, Laidlaw lost $344 million a year later, while the value of its stock dropped 70 percent. According to The Economist, tougher environmental laws created a bureaucracy that was expensive to navigate, but this was only part of the company's problems: "Laidlaw has suffered more than many of its rivals. Mr. DeGroote's acquisition spree was haphazard. In some cities, Laidlaw trucks carry rubbish to other companies' landfills. In others, Laidlaw owns the dumps but not the trucks. None of this mattered much when business booming." In addition, Laidlaw was saddled with a pair of DeGroote-engineered deals that caused more trouble than they were worth: a 35-percent stake in Attwoods, a United Kingdom-based waste-management group that was deep in debt, and the Bermuda-based ADT Ltd. security-systems firm, headed by entrepreneur Michael Ashcroft, with whom Jackson clashed because of ADT's mystifying accounting practices.

In 1991 Laidlaw sued ADT for employing "contrived transactions to fabricate a continuing stream of 'profits' and asset growth." The two parties settled the matter with ADT agreeing to four Laidlaw nominees to its board. Jackson also took steps to reorganize Laidlaw's waste-management unit, including the withdrawal from several U.S. cities. He tried to diversify the bus business by adding commuter bus lines in a number of cities, including Denver, Los Angeles, and San Francisco. He looked overseas, acquiring waste management companies in Italy. In addition, he took Laidlaw into the U.S. ambulance sector with the June 1993 acquisition of MedTrans. Medical transportation was not only highly lucrative but also a very fragmented industry: No company controlled more than 2 percent of the market. Jackson maintained that Laidlaw was on the verge of strong growth, but by now he had fallen out of favor with his board of directors, and in October 1993, following a board meeting, he tendered his resignation.

Jackson's successor was James Bullock, the former CEO of Cadillac Fairview Inc., one of Canada's largest commercial real estate companies. Canadian Pacific gave Bullock a free hand in restructuring the company, and over the next four years he cast off a number of assets and acquired many others. He dumped the company's stock in ADT and sold off Laidlaw's solid-waste interests. He also followed Jackson's lead and committed the company further into the medical transport sector. In 1995 Laidlaw's MedTrans subsidiary acquired, Santa Ana, California-based CareLine Inc., one of a handful of consolidators in the industry and the third largest ambulance company in America. Since its founding in 1992 CareLine had acquired 22 small ambulance companies located in nine states. MedTrans vied with American Medical Response (AMR) to become the largest ambulance company in the country. In 1996 Laidlaw acquired AMR for $2.2 billion. A year later Laidlaw got involved in a related field that it believed was primed for consolidation, paying $400 million in cash for Dallas-based E Holdings Inc., the United States' largest private operator of hospital emergency rooms. Also in 1997 Laidlaw acquired Spectrum Healthcare Services. The idea was to bundle emergency transportation with physician services in prepaid managed care. Another 1997 acquisition was the DAVE Companies, which specialized in para-transit.

KEY DATES

1924:: Robert Laidlaw starts a Canadian trucking company.
1958:: Michael DeGroote acquires Laidlaw Transportation.
1969:: Laidlaw is taken public on Toronto Stock Exchange.
1979:: Company becomes involved in Canadian school bus sector.
1983:: Laidlaw enters U.S. school bus market; company is listed on NASDAQ.
1990:: DeGroote retires.
1993:: Laidlaw acquires MedTrans, an American ambulance service company.
1998:: Greyhound Lines is acquired.
2001:: Laidlaw files for bankruptcy protection.
2003:: Laidlaw emerges from bankruptcy.
2005:: The company's health care interests are divested.

Bullock was active on other fronts as well. In 1997 Laidlaw Environmental acquired Safety-Kleen Corpora tion, an industrial services provider, and assumed its name. Bullock expanded Laidlaw's passenger-transportation business, adding intercity buses by acquiring Greyhound Canada in 1997 for $44.4 million. A year later Laidlaw acquired Greyhound Lines Inc. in the United States for $816 million and the assumption of $416 million in debt. By reuniting Greyhound, Bul lock expected to realize savings in such overhead items as insurance, financing, and head-office expense. Laidlaw also continued to build its school bus business, which Bullock initially considered divesting. Bullock told Canadian Business, "The more I looked at the business, the better I liked it." In 1995, a decade after DeGroote failed in his bid to take over Mayflower, Laidlaw acquired its school bus and other passenger transportation busi-ness for $157 million. A year later Laidlaw acquired Canada's Charterways and National School Bus Service, based in Buffalo.

BANKRUPTCY TO CLOSE CENTURY

Unfortunately for Bullock, he grew Laidlaw too quickly and took on more debt—approximately $3.1 billion—than the company could handle. By 1999 Laidlaw was in trouble and began taking corrective action. Merrill Lynch & Company was hired to advise the company on the sale of assets to reduce its debt load. Laidlaw elected to sell off Safety-Kleen and its health care operations, hoping to raise more than $2 billion. While buyers were lined up, Laidlaw's directors met in December 1999 and voted to remove Bullock from office. He was replaced by Chief Operating Officer John Grainger.

Laidlaw began negotiating with its principal lenders in 2000 and after a year of talks, the two sides came to an agreement, so that in June 2001 Laidlaw was able to file for Chapter 11 bankruptcy protection and put into effect a restructuring of its massive debt. While this was worked out over the next year of so, a new chief executive was installed in September 2002, Kevin E. Benson. He was the former CEO of Canadian Airlines and prior to joining Laidlaw had served as the president and CEO of the Insurance Corporation of British Columbia.

Laidlaw emerged from bankruptcy protection in June 2003, at which point it assumed the name Laidlaw International Inc. While the company had been able to sell off its interest in Safety-Kleen, it retained AMR and EmCare. The holdings, management believed, were too diverse and made it difficult to sell Laidlaw to investors. It was clearly only a matter of time before the health care business were sold off. In February 2005 a deal was struck, with AMR and EmCare fetching $798 million. The money, along with a new credit facility, was then used to retire more expensive and restrictive debt that was hindering Laidlaw's growth. In addition, $85 million was spent to retire some 3.8 million shares of common stock. As a result, management hoped the company was now positioned to grow its remaining assets, but only time would tell if school busing, intercity transport, and para-transit would prove to be a workable combination.