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Laidlaw,Inc
Case study Reference no 201-006-1
This case was written by John D Sullivan,Boston University.It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.The case was compiled from published sources and generalised experience.
© 2000,JD Sullivan,Boston University.Revised 2004. No part of this publication may be copied,stored,transmitted,reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.
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Laidlaw, Inc. Background
Founded in 1924, Laidlaw had run solid for almost 75 years. But in 1999, the
atmosphere changed for the Canadian corporation. Under an aggressive acquisition
strategy that consumed the 1990s, along with growth in revenue came a heavy burden of
long-term debt surpassing $3.1 billion. What had once been a profitable company
reporting Net Income of $346 million in 1998 had experienced a reversal of fortune. For
fiscal year ending August of 1999, Laidlaw’s Net Income plunged to ($1.1) billion and
for the nine months ending May of 2000, Net Income fell further to ($1.9) billion.1
As a short-term measure, management negotiated with bondholders to receive
sufficient consents to permit certain subsidiaries to enter into secured banking
agreements. The financing arrangements would provide a revolving line of credit in an
amount up to $150 million with a letter of credit in amount up to $50 million from a
group of financial institutions led by Canadian Imperial Bank of Commerce. In addition,
a revolving line of credit would be available up to $125 million with a credit sub-facility
in an amount up to $25 million for Greyhound Lines, Inc. from Foothill Capital
Corporation, a wholly owned subsidiary of Wells Fargo.
copyright 2000 – John D. Sullivan This case was written to stimulate class discussion and analysis and is not a critique of an effective or ineffective management situation. 1 Laidlaw – Investor Relations. www.laidlaw.com/laidlaw/investors/hls_three.html
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The consent agreement, announced on October 25, 2000 in Dallas, Texas, only
provides Laidlaw and Greyhound with a short-term solution to their financial problems.
For the company to survive, it will need to implement a solid restructuring plan.
The Company
Laidlaw Inc. serves as a holding company and through operating its subsidiaries,
provides essential and specialized services dedicated to the transportation of people
throughout North America. Founded in 1924 by Robert Laidlaw, the company had built
a reputation for waste management. But by the early 1990’s, through an acquisition and
divestiture strategy (exhibit 1), the company became recognized for the yellow school
buses that hold its name. Under the leadership of James Bullock, the company sold off
non-core holdings and diversified into health care with the acquisition of American
Medical Response for approximately $1.1 billion in 1997. That same year, Laidlaw
added to its health care portfolio with the purchase of EmCare, an emergency room
manager, for $400 million. Adding to the company’s investment in waste management,
Laidlaw purchased Safety-Kleen, a company specializing in hazardous waste
management, in 1998 for $2 billion.
Under the umbrella of its core transportation business, Greyhound Canada was
acquired in 1997. To compliment this merger, Laidlaw followed with the purchase of
Greyhound Lines Inc., in 1999 for $800 million. Greyhound is the only nationwide
provider of scheduled inter-city bus transportation services in the United States.
In the last three fiscal years, the percentage of revenue generated by the United
States Operations has been 87.2%, 83.2% and 86.0%, respectively. The company intends
to continue to expand throughout North America in each of its core businesses.2
2 Laidlaw Inc., Securities and Exchange Form 10K. August 1999.
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Education Services
Laidlaw operates school buses and special education vehicles, primarily under the
names Laidlaw Transit, Mayflower Contract Services, and National School Bus Services
in the United States. In Canada, Laidlaw operates school buses under Laidlaw Transit
and Charterways. Although Laidlaw purchased seven education service businesses in
1999, revenue growth was primarily attributable to price and volume growth including
route additions and higher pricing on under performing contracts.
Laidlaw currently operates under 1,072 school boards in the United States and 61
in Canada providing transportation for approximately 2.3 million students each day.
Contracts in the United States are generally three to five year agreements with options by
the school board to extend the contracts or solicit new bids. In Canada, most contracts
are one-year agreements and negotiated or renewed annually. Rates are usually
established on a per-diem basis and vary with the number of buses and students and
length of each route. In addition to the transportation of students, the school bus fleet is
also utilized for charters.
Education services employs approximately 46,500 people to provide
transportation services of which 2,800 provide executive, supervisory, clerical, and sales
functions. Nearly 41,200 are considered part-time employees and approximately 47%
are members of collective bargaining groups. The management of this division believes
that management and work force have an excellent working relationship.
Transit and Tour Services
Laidlaw had acquired Greyhound Lines, Inc. during fiscal 1999 and had
previously acquired Greyhound Canada Transportation Corp. in October 1997.
Greyhound serves the “value-oriented” customer by offering scheduled passenger service
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that connects rural and urban markets throughout the United States and Canada with
3,700 destinations, 20,000 daily departures, and a fleet of approximately 2,500 buses.
Greyhound also provides package express service, charter bus service, and in many
terminals, food service. The company also provides services to municipal transit
customers through 225 contracts in the United States and Canada. Additional services
include para-transit services providing access to transportation for mobility impaired
individuals, scheduled services under private contracts, and package tours to major
tourist regions of the United States and Canada.
Approximately 24,800 people are employed to provide transit and tour services.
Of these employees, 3,400 persons serve executive, supervisory, clerical, and sales
functions. Nearly 5,400 employees are considered part-time and 9,900 are members of
collective bargaining agreements. The Amalgamated Transit Union or ATU, represents
5,000 of Greyhound’s employees. The largest ATU agreement, which covers drivers and
mechanics, expires on January 31, 2004.3
Greyhound’s business is seasonal in nature and tends to peak during the summer
months and major holidays. As a result, cash flows experienced by the company also
tend to be seasonal.
Major Competitors in Education and Transit Services
Although Laidlaw is the largest school bus company and special education
transport operator in North America, it competes directly with other large companies and
a substantial number of small local operators including school districts and other
municipalities that operate their own education transit system. When contracts with
3 Laidlaw Inc., Securities and Exchange Form 10K. August 1999.
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school boards expire, competition for extensions or new contracts is most prevalent in the
areas of pricing and service.
The transportation industry is highly competitive and includes individual
automobile usage, low cost air travel, regional bus companies, and the train system.
Greyhound competes in this industry based on cost and convenience.
Coach USA Inc.
The largest bus charter service and the second largest bus company in the United
States, Coach USA is operating under the restructuring plan of its United Kingdom
parent Stagecoach Holdings. Coach USA provides airport ground transportation and
daily routes to special destinations for commuters. The company’s fleet consists of 9,500
buses, taxicabs, mini-coaches, and shuttle buses. Like Laidlaw, the company has fueled
its rapid expansion through acquisitions and now operates in 35 states in the United
States and throughout Canada.
First Group Plc.
First Group Plc., smaller than both Coach USA and Laidlaw, has taken advantage
of Britain’s deregulation of the bus, coach, train, and airport industries. The company
operates several rail lines in the UK and owns a 51% stake in the Bristol International
Airport. As with Coach USA and Laidlaw, much of the company’s growth has been
achieved through acquisitions. One acquisition in particular, Ryder’s bus division, has
brought the company to the United States.
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National Railroad Passenger Corporation (Amtrak)
National Railroad Passenger Corporation, or Amtrak, carries approximately 21
million passengers each year and operates 22,000 miles through 45 states in the US. A
large “for-profit” company that has rarely been profitable receives subsidies through the
United States federal government to ensure its operation. To lure passengers away from
the lucrative shuttle flights on the East Coast, Amtrak has constructed a high-speed rail to
open in 2000.
Southwest Airlines
Southwest Airlines has expanded its low cost, no frills, and no reserved seats
approach to air travel to serve more than 55 cities and 29 states in the US. To curb
maintenance and training expenditures, the airline uses only Boeing 737s and currently
uses approximately 320 planes. To trim back office expenditures, Southwest offers
ticketless travel and operates its own reservation system. As part of the airlines
expansion plans, Southwest has increased its routes throughout the East Coast and
continues to thrive with its highly participative corporate culture and 27 years of
profitability.
Emergency Health Care Services
Laidlaw provides healthcare transportation services, primarily under the name
American Medical Response, and emergency room management services under the name
EmCare. In 1999, the company had announced plans to divest both of these operations.
The company provides health care transportation services from locations in 36
states in the United States and also operates in Ontario, Canada. These services consist
of critical care transportation services, non-emergency ambulance and transfer services,
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and emergency response services. Annually, the company provides approximately five
million ambulance responses and has more than 200 agreements with municipal or
country public safety agencies to provide performance-based contracts for 911 responses.
The company also provides comprehensive on-site medical care and transport services
for all types of special events.
Laidlaw also offers physician practice management services to hospital based
emergency departments. The company recruits physicians, evaluates their credentials,
and arranges contracts and schedules for their services. The company also assists in such
operational areas as staff coordination, quality assurance, departmental accreditation,
billing, record keeping, third party payment, and other administrative services.
Currently, Laidlaw has approximately 300 contracts for the management of emergency
room departments and provides emergency services in 36 states to more than 5 million
patients.
As a result of poor financial performance, Laidlaw announced in March 1999 that
approximately 2,200 positions or 10% of this division’s workforce would be eliminated.
Under the restructuring plan, under performing locations would be closed or sold.
As of fiscal year end 1998, Laidlaw employed approximately 24,500 employees
in the health care division. Of these, 5,200 employees are executive, clerical,
supervisory, and sales. 5,900 employees are considered part-time and approximately
53% are members of collective bargaining agreements.
Major Competitors in Health Care Services
Laidlaw is the largest provider of health care transportation services in the United
States and competes both with large companies and a substantial number of smaller
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operators. The primary competition with the renewal or extension of contracts is based
on price and service performed.
Emergency physician practice management is also emerged in heavy competition.
Competition for these contracts is usually based on cost and the ability to make
physicians available as needed. In addition, competition is also based on maintaining the
proper utilization and communication between the emergency room and other
departments within the hospital.
American Medical Alert Corp.
American Medical Alert offers medical dispensing devices and fire burglar alarm
monitoring. Nearly 95% of the company’s sales come from monthly fees for leasing and
monitoring its emergency response systems and other equipment. Primary customers for
the service include individuals, hospitals, retirement homes, and the City of New York’s
Homecare Service Program.
Community Medical Transport, Inc.
Community Medical Transport provides medical transportation offering
ambulance services for patients that require basic medical care or supervision during
transport to or from hospitals, nursing homes in the New York metro area.
Rural Metro Corporation
Rural Metro provides ambulance, fire protection, and other safety related services
to municipal, residential, commercial, and industrial customers in the United States. The
large health care ambulance provider, second only to American Medical Response,
responds to emergence calls and offers non-emergency transport between health care
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facilities. Fees collected for ambulance services account for more than 80% of sales.
The company also provides municipal and commercial fire fighting services and provides
training for fire fighters for industrial manufacturing facilities. Rural Metro operates in
more than 450 communities in 26 states, Canada, and South America.
Med-Emerg International, Inc.
Med-Emerg International, Inc. is emerging as a player in Canada’s medical
industry. The company is divided into three primary divisions: Physician and Nurse
Recruitment Services, Physician Management Services, and HealthyConnect.com, an
online health care network. Med-Emerg International, Inc. owns clinics offering services
such as family practice, emergency care, chiropractic care, massage therapy, Chinese
medicine, and family counseling. The company also provides short-term physician and
nurse staffing and administrative support to emergency room departments and hospitals.
The company’s web site is designed to link patients, physicians, and service providers.
PhyAmerica Physician Group, Inc.
PhyAmerica Physician Group, Inc. provides contract physicians primarily to
emergency rooms to approximately 270 hospitals, government agencies, the military, the
Veterans Administration, and correctional facilities. The company has refocused its
attention to its main core contract business divesting businesses such as its HMO.
Other Business Segments
As of August 1999, Laidlaw owned approximately 44% of the shares of common
stock of Safety-Kleen Corp. Safety-Kleen provides industrial waste services designed to
collect, process, recycle and dispose of hazardous and industrial waste to more than
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400,000 companies through over 200 locations. These services include collection and
recovery services, provided to industrial, commercial and institutional customers and
treatment and disposal services, defined by the technologies employed such as thermal
treatment, landfill, and specialty services. On September 13, 1999, Laidlaw announced
its plan to actively seek a buyer for its interest in Safety-Kleen.
In addition to financial under performance, Safety-Kleen has received several
class action suits since April 2000 alleging that the company had accounting
irregularities and may have misled investors. Following the suits, the company hired
Lazard Freres & Co LLC for financial advice. In the meantime, three top executives
were suspended in May 2000 as a result of the accounting irregularities and new
management has been set in place to resolve any further issues with the company’s
financial reporting.
In October of 2000, Laidlaw sold its Manchu Wok Chinese food business to an
investor group for an undisclosed amount. Manchu Wok is a chain of Chinese fast food
restaurants that operates throughout North America, as well as two units in Poland.
Major Competitors in Waste Management
Allied Waste Industries, Inc.
Allied Waste Industries, Inc. collects trash and garbage from approximately 9.9
million residential and commercial customers throughout the United States. As the
number two waste management operator behind Waste Management, Inc., the company
participates in every facet of the non-hazardous waste industry through 150 transfer
stations, 160 landfills, and 90 recycling facilities.
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Republic Services, Inc.
As the number three waste collector, Republic Services, Inc. provides waste
disposal services for commercial, industrial, municipal, and residential customers
through 151 collection companies in 24 states in the United States and one in Canada.
The company also operates 55 landfills and more than 80 transfer stations.
Waste Management, Inc.
Waste Management, Inc., formerly USA Waste Services, is the largest waste
service provider in the United States. The company serves municipal, business, and
residential customers in the United States, Canada, and Mexico. Focusing on the
company’s core operations in North America, Waste Management is in the process of
selling its solid and hazardous waste management services in Asia, Europe, the Pacific
Rim, and South America.
Conclusion
Laidlaw is in a period of transition. Under an aggressive acquisition strategy, in
addition to new divisions and base businesses, the company has added a significant
amount of debt to its balance sheet. Under an agreement with its bondholders, the
company has renewed hopes with a short-term financing agreement. However, for the
company to survive, a restructuring plan must be set in place immediately. Otherwise,
the only option available is bankruptcy protection.
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Exhibit 1
The Evolution of Laidlaw
1924 Founded in Ontario, Canada as a trucking company by Robert Laidlaw
1959 Company sold to Michael DeGroote
1969 Company shares listed on the Toronto Stock Exchange First Canadian solid waste management company acquired
1972 First Canadian intercity and charter bus company acquired
1978 First solid waste company acquired
1979 First Canadian school bus company acquired
1983 First US school bus company acquired Stock is listed NASDAQ
1984 Trucking business sold
1986 Entered US chemical waste management business with acquisition
1988 Canadian Pacific Limited purchased
1989 Tricil acquired – chemical waste management business
1990 DeGroote Retires
Class A & B listed NYSE
1993 MedTrans acquired – Enters US ambulance business James Bullock becomes new President
1994 USPCI acquired – Waste management business 1995 Mayflower acquired – US school bus and transit company Care Line acquired – US ambulance business 1996 Charterways and National School Bus acquired
Solid Waste Management Units sold
1997 American Medical Response acquired Laidlaw environmental sold Stock restructured to one class Greyhound Canada acquired EmCare and Spectrum acquired
1998 Laidlaw invests in Safety Kleen 1999 Greyhound Lines, Inc. acquired Sale of American Medical Response, EmCare & Safety Kleen announced
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Exhibit 2
Acquisitions by Division
Nine Months Ended May 31 2000 1999 Education Services 6 7 Transit & Tour Services
2 7
Total 8 14
Exhibit 3
Financial Statistics
52 Week Low 0.063 (Nov 24, 00) 52 Week High 0.109 (Jan 5, 00) Beta 1.09 Daily Volume 729,000
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Exhibit 4
Consolidated Balance Sheets Assets
(in millions)
31-May-00 31-Aug-99 Assets Current Assets Cash $189 $58 Investments $174 $209 Accounts Rec $329 $215 Other $96 $82 Total Current Assets $788 $564 Net Assets Discontinued Operations $505 $1,617 Long Term Investments Safety Kleen $0 $593 Other $206 $188 Total LT Investments
$206 $781
PP & E $2,208 $2,112 Less Depr. Amort $754 $632 Net PP & E $1,454 $1,480 Other Assets Goodwill $1,212 $1,212 Deferred Charges $11 $31 Deferred Income Tax $0 $68 Total Other
$1,223 $1,312
Total Assets $4,177 $5,754
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Exhibit 5
Consolidated Balance Sheets Liabilities & Shareholder Equity
(in millions)
31-May-00 31-Aug-99 Liabilities Current Liabilities Accounts Payable $93.5 $139.4 Accrued Liabilities $353.3 $337.2 Current Long Term Debt
$3,457.2 $9.3
Total Current Liabilities
$3,904.0 $485.9
Deferred Items $166.9 $242.0 Long Term Debt $197.9 $3,113.3 Shareholder Equity Preference Shares $7.9 $8.0 Common Shares $2,222.6 $2,246.8 Foreign Currency Translation
($167.6) ($168.4)
Deficit ($2,155.0) ($173.3) Total Shareholders Equity
($92.1) $1,913.1
Total Liabilities & Equity
$4,176.7 $5,754.3
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Exhibit 6
Long Term Debt As of August 1999 and August 1998)
(in millions)
Weighted Average
Interest Rate Book Value Maturity 1999 1998 1999 1998 Short Term Less than one year 0.072 0.061 $9.3 $1.8 Long Term Bank Debt 2000-2005 0.055 0.054 $649.2 $454.8 Notes and Other 2000-2033 0.074 0.062 $137.3 $87.9 Debentures 2000-2027 0.074 0.076 $2,326.8 $1,747.3 Total Long Term Debt $3,113.3 $2,290.0 Total Debt $3,122.6 $2,291.8
Exhibit 7
Debt to Equity Ratio
E d u c a tio n S e r v ic e s
9 0 %
T r a n s it & T o u r
S e r v ic e s 1 0 %
E d u c a t io n S e r v ic e s T r a n s it & T o u r S e r v ic e s
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Exhibit 8
Income Snapshot (in millions)
31-May-00 31-May-99 Education Services Revenue $1,255.1 $1,159.9 Income from Operations before Amortization
$188.1 $202.9
Income from Operations $167.1 $183.6 Transit & Tour Services Revenue $1,053.6 $530.2 Income from Operations before Amortization
$32.8 $26.4
Income from Operations $19.8 $18.5
Exhibit 9
Laidlaw Sources of Revenue 1997
Education Services
69%
Transit & Tour
Services 31%
Education Services Transit & Tour Services
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Exhibit 10
Laidlaw Sources of Revenue 1999
Laidlaw Inc.- Revenue by business segment 1999
Education Services
59%
Transit & Tour Services
41%
Education Services Trans it & Tour Services
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Exhibit 11
Laidlaw Consolidated Statements of Operations
(in millions)
Three Months Ended
Nine Months Ended
31-May 31-May 2000 1999 2000 1999 Revenue Education Services
$441.0 $414.8 $1,255.1 $1,159.9
Transit & Tour $370.6 $301.0 $1,053.6 $530.2 Total Revenue $811.6 $715.8 $2,308.7 $1,690.1 Operating Expenses
$581.8 $494.2 $1,637.2 $1,171.9
SG,& A $94.8 $77.9 $273.7 $142.9 Depreciation $60.2 $53.0 $176.9 $146.0 Amortization Expense
$14.8 $11.2 $34.0 $27.2
Income from Operations
$60.0 $79.5 $186.9 $202.1
Interest Expense ($56.6) ($27.0) ($134.3) ($60.4) Other Financing ($89.0) $0.0 ($89.0) $0.0 Other Income $2.5 $13.8 $10.3 $56.2 Earnings Safety Kleen
$0.0 $10.8 $10.8 $27.3
Impairment Loss ($58.8) $0.0 ($663.8) $0.0 Income Before Tax
($141.9) $77.1 ($679.1) $225.2
Income Taxes ($1.5) ($16.6) ($15.8) ($49.5) Tax Other
($85.0) $0.0 ($106.5) ($21.0)
Income\Loss from Op
($228.4) $60.5 ($801.4) $154.7
Discontinued Operations
($314.1) ($287.7) ($1,148.6) ($278.7)
Net Loss for the Period
($512.5) ($227.2) ($1,950.0) ($124.0)
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Exhibit 12
Laidlaw EBITA by Business Segment 1997
Exhibit 13
Laidlaw EBITA by Business Segment 1999
Education Services
90%
Transit & Tour
Services 10%
Education Services Transit & Tour Services
Education Services
69%
Transit & Tour
Services 31%
Education Services Transit & Tour Services
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Exhibit 14
Stock Price History
Calendar Year 1999 1998 1997 1996 1995 High Price $10.50 $16.63 $18.00 $12.25 $10.13 Low Price $5.06 $8.63 $11.63 $8.88 $8.25 Year End Price $5.25 $10.06 $13.63 $11.75 $9.88 High P/E 20.92 20.42 333.33 30.78 37.78 Low P/E 10.09 10.60 215.28 22.30 30.78 Year End P/E 10.46 12.36 252.31 29.52 36.85 Dividend Yield 5.33 2.58 1.47 1.62 1.62
Exhibit 15
Market Capitalization History
Stock Price History
0
2
4
6
8
10
12
14
16
Ja n-
94
Ap r-9
4 Ju
l-9 4
Oc t-9
4
Ja n-
95
Ap r-9
5 Ju
l-9 5
Oc t-9
5
Ja n-
96
Ap r-9
6 Ju
l-9 6
Oc t-9
6
Ja n-
97
Ap r-9
7 Ju
l-9 7
Oc t-9
7
Ja n-
98
Ap r-9
8 Ju
l-9 8
Oc t-9
8
Ja n-
99
Ap r-9
9 Ju
l-9 9
Oc t-9
9
Ja n-
00
Ap r-0
0 Ju
l-0 0
Oc t-0
0
price History
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Suggested Questions for Students 1. How did Laidlaw weaken its financial strength? 2. Is Laidlaw’s decision to sell its stake in Safety Kleen appropriate given
Safety Kleen’s legal troubles leading to filing for bankruptcy protection? 3. Given Safety Kleen’s financial troubles, how much is it worth? 4. Why is Laidlaw selling its health care division? 5. How would you value the health care division? 6. Would Laidlaw be better off implementing and fulfilling its restructuring
plan of the health care division? 7. How competitive is the health care market? 8. How strong are Laidlaw’s Education, Transit, and Tourist Divisions? 9. Are these divisions strong enough to turn Laidlaw around? 10. What restructuring recommendations would you suggest in addition to the
company’s strategy of selling Safety Kleen and its health care unit. 11. How would the unions impact any of Laidlaw’s restructuring plans?Does Laidlaw
have sufficient time to turn the company around?
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