GOTEBORG, Sweden - In a far-reaching move, Volvo Group, the world's largest manufacturer of heavy-duty diesel engines and a major producer of trucks and buses, has become the leading force in North American bus manufacturing.
Volvo Bus Corp., a division of Volvo Group of Goteborg, has obtained 100 percent ownership of Prevost Car and its Nova Bus division, plus it becomes the principal owner of Blue Bird Corp., the largest school bus maker in the U.S., with an extended product line of motorcoaches and commercial, transit and RV buses.
At the same time, the deal marks the demise of the Henlys Group PLC of England, both as the largest manufacturer of buses and coaches in the U.S. and Canada, and as a going concern.
Henlys, which collapsed early this past summer under crushing debt and continuing losses resulting from a number of factors, including a major slump and makeover at Blue Bird, is being liquidated at the conclusion of the deal.
A small army of bankers, financial advisers, attorneys and executives from Henlys, Volvo, Blue Bird and Prevost have been working for months to restructure Henlys assets and deal with its $365 million in senior debt. Much of the debt was held by Volvo.
Leading the restructuring effort was David James, a British executive who has spent the past 15 years revamping moribund corporations. He was appointed chairman of Henlys in May, as it was entering its death throes. One executive involved in the negotiations said James' leadership was essential to getting the deal done.
Under the agreement announced last month, Volvo acquires the 50 percent of Prevost that had been owned by Henlys. Volvo and Henlys jointly bought Prevost almost 10 years ago; they each owned 50 percent.
Along with Prevost, Volvo also gets Nova Bus, the transit coach builder, which operates as a division of Prevost. The purchase price for Prevost (and Nova Bus) is $83 million, which includes two loans, totaling $40 million, made available to Prevost by Henlys. Prevost, which has been a consistent money maker for Henlys and Volvo, now becomes a wholly owned subsidiary of Volvo Bus.
Another key aspect of the deal involves Volvo converting part of a $240 million loan issued to Henlys into shares of a newly establish U.S.-based company that will own Blue Bird. With accrued interest of $15 million, Volvo's total claim against Henlys was roughly $255 million.
The conversion will force Volvo to write off $170 million.
Henlys acquired Blue Bird at the inflated price of $665 million in 1999. The purchase included assuming $237 million in Blue Bird debt. Volvo was a partner in that deal.
Under the restructuring agreement, Volvo, plus a consortium of banks and the Henlys' pension fund, have each converted parts of their claims against Henlys PLC to common and preferred stock in a new company, called Peach County Holdings, that owns Blue Bird.
After conversion, Volvo and the bank consortium each received 42.5 percent of the common shares and the pension fund 5 percent. Management of Blue Bird received the remaining 10 percent.
The Blue Bird deal also includes a term loan and working capital arrangement that will help stabilize the company, which has lost money for the past two years.
The managements of Prevost, Nova Bus and Blue Bird appear thrilled by the deal.
"Since becoming involved with our company, Volvo Bus has been a model shareholder that has supported Prevost Car in its quest for quality, reliability and financial performance," said Gaetan Bolduc, president and CEO of Prevost.
"Volvo Bus' renewed commitment to our company . . . represents a vote of confidence for Prevost Car Inc., as well as a promise of continued quality and innovation for our clients," Bolduc said.
"Being 100 percent owned by Volvo will create more opportunities for all kind of synergies," he added.
Blue Bird President and CEO Jeffry Bust said the company will "now compete with the benefits of a solid balance sheet and can move forward with its improvement process at a faster rate than over the last 12 months."
He said Blue Bird's employees, distributors and suppliers never lost focus on moving the company forward while the restructuring was being completed.
Gilles Dion, president and CEO of Nova Bus, said Volvo has consistently supported Nova Bus' principal corporate strategies of profitable growth, market development and enhancing customer relationships. He expects that to continue and accelerate.
In a statement, Volvo said the restructuring protects the interests of the company and its shareholders "in the best possible manner."
Volvo Bus is the world's second-largest bus and motorcoach builder, after DaimlerChrysler, selling 8,000 units annually. Its parent company, Volvo Group, is a $22.5 billion company. In addition to engines, buses and trucks, Volvo Group also produces construction equipment, aerospace components and drive systems.