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Stagecoach sells struggling US coach division to affiliate of Variant Equity

Liberum said the price paid for the business is "disappointing" but thinks the strategic logic of exiting the US is "sound"
Stagecoach plans to focus on its bus and rail services in the UK

Transport operator Stagecoach Group PLC (LON:SGC) is offloading its US coach business after reporting steep losses earlier this month.

The company, which runs Megabus in the UK and the US, said it would sell the struggling unit to Project Kenwood Acquisition for US$271mln and will use the proceeds of the deal to pay down debt.

Project Kenwood Acquisition is an affiliate of private equity firm Variant Equity.

Stagecoach plans to focus on its bus and rail services in the UK following the disposal, which is expected to be completed by April 27.

"The sale of our North American operations will allow management to focus more closely on the significant opportunities for growth in the UK,” said chief executive Martin Griffiths.

“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."

READ: Stagecoach mulls sale of US business as it swings to a first-half loss

Stagecoach reported a £22.6mln pre-tax loss for the six months to October 27, largely due to a £85.4mln writedown on the US division.

Like-for-like revenue in the division fell by 3% with North America revenue falling by 1.7%.

The US operations have been hurt by tough competition, rising fuel prices and higher staff costs. 

Liberum said the deal is below its assumed value of US$312mln.

“As such, the price achieved is disappointing, although the strategic logic of exiting the sub-scale North American operations remains sound,” the broker said.

“We update our forecasts to reflect the earnings dilutive disposal and cut our target price to 180p from 185p to reflect the achieved valuation. Our recommendation remains ‘buy’.”

Shares dipped 0.5% to 137.10p in morning trading.

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