When the DOJ calls about your competitor’s deal…

When the DOJ calls about your competitor’s deal…Is it good news when the No. 1 and No. 2 players in your industry merge to form a competitor many times the size of your company? It is if the antitrust authorities mostly see things your way.

That’s the word from Denis Gallagher, chairman of school bus service provider Student Transportation of America Inc., based in Wall, N.J. Gallagher says that when the U.S. Department of Justice (and eleven state attorneys general) started looking into the $3.6 billion acquisition of Laidlaw International Inc. by FirstGroup plc, agreed in February of last year, he was more than happy to help. “At one time we had 17 lawyers on the phone, and one economist. They were trying to collect data on markets around the U.S.”
Gallagher had plenty to share. His 30-year career in the industry even includes a nine-year stint helping Laidlaw expand; he joined in 1987 when he sold his New Jersey school bus company to Laidlaw. Like waste management and ambulance services, the school bus business was (and still is) ripe for rolling up. In 1996 Gallagher left Laidlaw to start STA, itself an avid acquirer of private bus companies and privatizer of the services many school districts still run themselves.

Previously backed by a couple of private equity firms, STA went public on the Toronto Stock Exchange in 2004. Still, with about $211 million in sales and 5,000 buses in 10 states and one Canadian province, STA is a lot smaller than the 60,000-bus company created when U.K.-based FirstGroup bought Naperville, Ill.-based Laidlaw.
Gallagher says he got calls from antitrust attorneys offering to help him make his case to the DOJ, but that STA did fine without the help. “We’ve been a major force in getting them to divest,” he says.

STA is a bidder for some of those assets. But Gallagher says the agreement that FirstGroup and Laidlaw reached with regulators in September has other provisions he likes as well. Two years ago, he says, STA won a contract in Riverside, Calif., that had been Laidlaw’s, but was hampered by Laidlaw’s refusal to sublease the maintenance yard in a tightly zoned real estate market. That’s changed now. “The DOJ forced them to sublease,” he says.

There’s more: For the next six years, Laidlaw has to inform the state attorneys general of any additional acquisitions, which leaves the field clearer for STA to pursue its own deals. And Gallagher says he looks forward to hiring some of the execs his big competitor is laying off, and gaining the benefit of their customer relationships.

If all this sounds like it’s coming from a man who wants some attention for a stock he’s aiming to list in New York, it is. And FirstGroup, for its part, said at the time of the settlement that it was pleased with a package that is “significantly less onerous” than it expected. But if FirstGroup likes its deal, Gallagher sure seems to like his, too. In his conversations with the DOJ, he recalls, “they kept saying, ‘We can’t understand if you’re excited about this, or mad.’ ” – Kenneth Klee