Greyhound Is Limping Badly

To investors in Greyhound Lines Inc., the episode was evidence of shareholder activism at its finest--and quickest. On Aug. 5, Connor, Clark & Co., a Toronto investment manager with an 18.3% Greyhound stake, publicly called for the ouster of Chief Executive Frank J. Schmieder. Four days later, after a special meeting of Greyhound's directors, Schmieder had resigned. "The market has spoken," crowed investor Chriss W. Street of Chriss Street & Co.

Greyhound investors have been grumbling for months. The nation's dominant passenger bus line has lost money in its last three quarters (chart). Its stock has dropped 73% in the past year, to about $6, and a poison pill, instituted in March, heightened discontent. Many outsiders and former executives say that top management, with little previous industry experience, has neglected such basics as operating buses on time. "This is the destruction of an American icon," complains a former operations manager.

APPLAUSE. Greyhound denies that Schmieder, a former investment banker who took the reins in July, 1991, was forced out. Director and former Pan Am chief Thomas G. Plaskett, named as interim CEO, insists there was no knee-jerk reaction to investor pressure--although as late as Aug. 5, according to a company spokesman, the special board meeting on Aug. 9 was not yet scheduled. Rather, Plaskett says, directors had discussed for "some months" the right management team to implement a major overhaul announced in mid-July. "There was mutual agreement that now was the time for change," he says.

Schmieder wouldn't comment. But his departure drew unanimous applause from investors, former managers, and analysts who have weathered a rocky three years since Greyhound emerged from bankruptcy protection. Early on, Schmieder won praise for slashing costs, upgrading buses and facilities, and settling the bitter labor dispute that had pushed Greyhound into bankruptcy. His actions went only so far, though. "The problem with Greyhound has been that it's been very good at cutting expenses but it has not been good at getting people to travel on buses," says analyst Anthony Low-Beer at M. Kimel- man & Co.

Greyhound's traffic fell nearly 10% in the first half of this year, even as heavy discounting took its toll on the bottom line. Managers blamed competition from discount airlines, the economy, bad weather, and glitches in a new computer reservation system. But some outsiders believe Greyhound's executives were ignoring more fundamental issues. "The company was not being led by transportation people. It was being led by accountants," says Thomas F. Meagher, who left the company's board in May--in part, he says, because he disagreed with management's direction.

DEEP CUTS. Passengers' phone calls for fare and schedule information, for instance, are often met with busy signals. On-time performance slipped to 59% in July--decent for the summer season, the company says, but well below its historical high of 81%. And with deep cuts in its fleet size, Greyhound reduced service on some of its most popular routes.

Marketing flip-flops haven't helped, either. Last year, Greyhound tried national image-building ads with the theme "I go simple, I go easy, I go Greyhound." In May, Schmieder canned the campaign and returned to advertising fares tailored to individual markets. But critics say Greyhound's pricing can be nonsensical. For instance, a one-way, advance-purchase fare of $68 or less for any of Greyhound's 2,500 destinations, introduced in May, is too deep a discount in many markets, say rivals.

Plaskett, who says that he may remain CEO for up to 18 months, has set to getting "employees back on track and getting our spirits up." That won't be easy as Greyhound chops up to 1,000 jobs--part of its plan to focus on regional routes while scaling back its network and slashing $65 million in expenses a year. Meanwhile, investors --Connor Clark among them--are pressing for board seats. "There are still many steps that have to be taken by this board and this management team," says investor Alan B. Snyder of Snyder Capital Management. And of course, Greyhound must find a new CEO. America's bus company may have a road map now, but it still needs a permanent driver.

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