New Flyer acquires Motor Coach Industries in blockbuster bus deal

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It’s a deal that has been contemplated for many years.

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Hey there, time traveller!
This article was published 10/11/2015 (2583 days ago), so information in it may no longer be current.

It’s a deal that has been contemplated for many years.

New Flyer Industries Inc. announced this morning it will buy Motor Coach Industries International Inc. for $455 million.

The blockbuster deal combines North America’s largest highway bus manufacturer (MCI) and the largest urban bus maker (New Flyer) and focuses even more of the industry on Winnipeg (MCI had been run by a management team based in a Chicago suburb.)

Melissa Tait / Winnipeg Free Press Files Buses on the manufacturing line at New Flyer.

The deal comes one week after New Flyer released one of the most successful quarterly results in some time.

Motor Coach has its main production facility in Winnipeg, a smaller one across the border in Pembina, N.D. and a large parts distribution centre in Louisville, Ken.

It has a total of 1,500 employees, about 900 of whom are in Winnipeg.

New Flyer is saying the deal, which is to close by the end of the year, will contribute to the bottom line and has already announced that it will increase dividends by 12.9 per cent from $0.62 to $0.70 per share annually at the close of the transaction.

New Flyer management going back close to 10 years has been dreaming about this kind of deal.

CEO Paul Soubry said it was something he thought was a good idea when he joined New Flyer seven years ago.

“(Previous CEO John Marinucci) also liked the deal,” Soubry said. “But candidly New Flyer’s foundation was not ready for this kind of sizable addition. I think we have done a great job stabilizing our business, fixing our capital structure and now we are in a position where we can take on this transformative-type acquisition.”

The two companies do not compete for customers and effectively operate in separate markets.

Soubry said this is a diversification play and not an integration. Meaning the two companies will continue to operate separately and there are no layoffs or plant closures or integration being contemplated.

“This is not a synergy story,” he said. “It’s not like we’re grabbing and cutting and chopping. What we are trying to do is let their business operate to its plan and really work and try to enhance it.”

Motor Coach is even more dominant in the highway coach market than New Flyer is in the urban bus market.

As of December 31, 2014, MCI had approximately 28,000 units on the road in North America, nearly twice the installed base of its nearest competitor.

For the first nine months of the year the company generated revenue of $443 million.

By comparison, New Flyer reported revenue of $364.7 million during just the third quarter.

New Flyer has arranged new senior secured credit facilities of US$825 million to help finance the transaction.

New Flyer is saying at the outset that it will be able wring about $10 million per year in operational savings through the rationalization of corporate costs and deployment of New Flyer’s lean manufacturing programs.

It also says that the transaction will add to New Flyer’s bottom line even before those operational savings have been produced.

MCI’s current owners, the private equity firm KPS Capital Partners, were former owners of New Flyer.

New Flyer shares are up almost 10 per cent this morning to $23.22, a new 52-week high.

Martin Cash

Martin Cash
Reporter

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

History

Updated on Tuesday, November 10, 2015 12:22 PM CST: Updates with writethru

Updated on Thursday, November 12, 2015 8:34 AM CST: Adds sidebars

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