STAGECOACH has sold its interest in Twin America, the sightseeing bus service in New York City that was previously embroiled in anti-competition legislation.
The Perth-based transport group launched the operation in 2009 as a joint venture with City Sights, which has now assumed full control of the business.
The stake sale was described by Martin Brown, an analyst at Shore Capital, as a “sad but understandable retreat”.
Loading article content
In April 2016 Stagecoach booked an exceptional charge of £37.9 million against the operation, reflecting its belief that the market for sightseeing tours in New York would remain highly competitive for the foreseeable future.
This comes after a number of new operators entered the market, increasing competition following Stagecoach and City Sights reaching an agreement with the US Department of Justice (DoJ) to surrender access to about 50 bus stops in Manhattan.
The value of the stake sale was not disclosed but it is understood that Stagecoach will make an exceptional gain of several million pounds in its current financial year. The transaction is not subject to any regulatory approval.
Stagecoach North America held 50 per cent of the voting rights and 60 per cent of the economic rights of the joint venture.
In December 2012 the DoJ and the Attorney General of New York initiated legal proceedings against Twin America, alleging that its formation was anticompetitive. Several private actions were also filed.
Twin America settled with the private plaintiffs in 2014, fully resolving the matter with a cash settlement of $19 million (£11m) while not admitting any liability.
A settlement with the DoJ and Attorney General was reached in 2015. The settlement required Stagecoach and City Sights to surrender access to about 50 Manhattan bus stops and “disgorge $7.5m in ill-gotten profits” that the DoJ said had been obtained by operating Twin America in violation of the antitrust laws.
Before the formation of Twin America, Stagecoach’s US subsidiary Coach USA and City Sights competed through the City Sights and Gray Line New York brands. The joint venture, according to the DoJ, "enabled them to increase hop-on, hop-off bus tour prices by approximately 10 per cent".
Stagecoach booked a £1.4m payment in 2016 relating to the settlements, following a £4.5m payment in 2015.
For the year to April 30, Stagecoach saw revenues for its 60 per cent of the Twin America operation dip 6.5 per cent to $69.8m, leading to a pre-tax loss of $1.2m, reversing a $3.2m pre-tax profit the previous year.
Mr Brown said: “From a total group point of view it is sadly an irrelevance when it comes to earnings. It used to be relevant and contributed a reasonable amount of money.”
He noted that the group had borne a heavy financial cost following the DoJ’s ruling, adding that the changes in the marketplace since the Twin America launched should have been a consideration.
“It was fair to have a look, but [the DoJ] should also have looked at the prevailing market,” he said.
Stagecoach remains committed to the US market, where its North America division includes the operation of bus services under contract to transit authorities and others; commuter bus services; inter-city coach services; bus tours; and charter operations.
The Division encompasses megabus.com North America, a low cost inter-city coach business, which sells inter-city coach journeys within North America and operates or sub-contracts the coach services.
Excluding Twin America, the group as of April 2016 operated about 2,300 vehicles in the United States and Canada.
Its entire North American division made a £430m contribution to Stagecoach’s group revenue of £3.9bn last year, with an operating profit of £19m.