The cash proceeds will be used to reduce Stagecoach's consolidated net debt.
The Disposal is expected to complete by the end of the current financial year to 27 April 2019.
Martin Griffiths, Stagecoach Chief Executive, commented:
"During our two decades in the North American transportation market, our success included reinvigorating the inter-city coach sector and delivering growth with our innovative megabus.com brand. We have a great team of people who have ensured we have played a leading role in the development of public transportation in the United States and Canada.
"The sale of our North American operations will allow management to focus more closely on the significant opportunities for growth in the UK. We have strong bus and rail operations in the UK where public transport has good prospects as the clear solution to the challenges of increasing road congestion and poor air quality."
Information regarding Stagecoach's North America Division
Stagecoach's North America Division operates bus and coach services. It provides megabus.com inter-city coach services, commuter services, airport transportation, sightseeing tours, charters and contract services across North America. It is one of the largest ground transportation operators in North America with around 4,500 employees and more than 2,000 buses and coaches.
For the year to 27 October 2018, Stagecoach reported revenue of US$619.4m (£460.3m) and operating profit* of US$21.7m (£15.9m) for the North America Division.
For the last full Stagecoach financial year to 28 April 2018, revenue for the North America Division was US$630.0m (£470.9m), operating profit was US$28.1m (£21.0m) and profit before tax was US$23.8m (£17.8m).
The gross assets of the North America Division as at 27 October 2018 were US$478.6m (£373.3m).
Background to and reasons for the Disposal
The Stagecoach Board believes that the Disposal represents an opportunity to realise an attractive valuation for the business whilst refocusing Stagecoach's portfolio on the UK.
The management of the North America Division are expected to remain with that business following the Disposal, while Stagecoach Group's management will principally focus on its UK bus and rail operations, and growth opportunities in the UK.
Terms of the Disposal and use of proceeds
The North America Division is headed by Coach USA, Administration, Inc. Stagecoach subsidiary, Scusi Limited ("Scusi"), has agreed to sell 100% of the equity of Coach USA, Administration, Inc. to Project Kenwood Acquisition, LLC. Project Kenwood Acquisition, LLC. is an entity managed by Variant. Variant is a private equity firm that focuses on pursuing corporate divestitures and other operationally-intensive transactions.
The consideration for the Disposal has been agreed at US$207.0m, subject to a "Locked Box" arrangement. Based on the net debt of the North America Division as at 27 October 2018 of US$64.4m (after adjusting for US$20.0m of dividends paid in November 2018 and reflected in the agreed price), that represents an enterprise value for the business of US$271.4m.
The consideration includes a Deferred Payment Instrument of US$65.0m, with the balance of the consideration being payable in cash on completion of the Disposal. The amounts that Scusi receives under the Deferred Payment Instrument might be affected by the future performance or subsequent sale of the North America business.
Under the agreed "Locked Box" arrangement, the cash consideration may be adjusted for certain "leakage" transactions, such as further dividends, prior to the completion of the Disposal. For a transitional period following the Disposal, Stagecoach will continue to support collateral arrangements for the ongoing operation of the North America Division, principally in relation to insurance.
The cash proceeds will be applied to reduce Stagecoach's consolidated net debt.
Completion of the Disposal is subject to certain conditions, principally relating to the approval of the Surface Transportation Board, the removal of certain Stagecoach parent company guarantees, change of control consents and no material adverse events. Stagecoach expects the Disposal to complete by the end of its current financial year to 27 April 2019.
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