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    FGP   GB0003452173


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Activist investor calls for breakup of UK's FirstGroup

12/11/2013 | 09:33am EDT
A greyhound sits beside a Greyhound bus at the launch of FirstGroup's new Greyhound UK service in London

LONDON (Reuters) - U.S. activist investor Sandell Asset Management demanded British transport operator FirstGroup (>> FirstGroup plc) split off its U.S. business, owner of the yellow school buses that operate across the country, to invest in its domestic arm.

LONDON (Reuters) - U.S. activist investor Sandell Asset Management demanded British transport operator FirstGroup (>> FirstGroup plc) split off its U.S. business, owner of the yellow school buses that operate across the country, to invest in its domestic arm.

The hedge fund's public attack caps a torrid year for FirstGroup, the leading transport operator in Britain and North America that handles more than 2.5 billion passengers a year.

In May the company had to raise 615 million pounds ($1.0 billion) to avoid its credit rating being cut to "junk" and scrapped its final dividend to fund investment.

Sandell, which owns just over 3 percent of FirstGroup, wrote to the directors urging them to spin off and list the U.S. business on the stock market.

It also called for the group, which was hit last year by the loss of a lucrative deal to run Britain's West Coast Main Line railway, to sell the Greyhound bus service that transports 18 million passengers across America each year.

Sandell said on Wednesday a break-up would enable FirstGroup to fund a much-needed investment program in its British bus business and to bid from a position of strength when the next round of rail franchises come up for tender.

FirstGroup rejected the proposal, saying it contained structural flaws and inaccuracies.

Analysts said it was too soon to sell the U.S. business, with the American economy still recovering and many of those who used FirstGroup's U.S. buses yet to feel any improvement in their fortunes.

"You would want to sell against a backdrop of a strong U.S. economy, not an improving one," Shore Capital analyst Martin Brown said, adding that until then most shareholders would want the British business to remain part of a larger group as it also recovers.

"FirstGroup is suffering a similar fate to National Express earlier in the year," another of FirstGroup's ten largest shareholders told Reuters. "(National Express) were pressurized to do a break up by another U.S. hedge fund, Elliott. Clearly U.S. investors think there is some value to be shaken out of these businesses."

In that instance, National Express stood firm, before Elliott Advisors sold down half of its near 20 percent stake.


FirstGroup has struggled to reduce its borrowings, much of which were incurred by the 1.9 billion pound acquisition of U.S. bus business Laidlaw in 2007. The group had said at the time that it would consider selling the Greyhound service, but never did as potential buyers disappeared during the subsequent financial crisis.

At the same time, FirstGroup maintained an aggressive dividend policy, which it had to scrap in May this year to fund a capital program to drive growth, margins and returns.

Shares in the Scottish group have fallen 75 percent since the Laidlaw deal in February 2007.

According to Thomson Reuters data, FirstGroup had a net debt to core earnings ratio of 2.8 percent in 2013, higher than the industry average of 2.1 percent which includes Stagecoach (>> Stagecoach Group plc), National Express (>> National Express Group PLC) and Go-Ahead (>> Go-Ahead Group plc).

FirstGroup said its objectives to improve growth and return cash, would in the long run offer superior value for shareholders compared with alternative proposals, which it said it had considered.

Shares in the group were up 5.6 percent in afternoon trading on Wednesday, valuing it at around 1.5 billion pounds.

Shore Capital's Brown also noted that investors would want to wait and see what incoming chairman, John McFarlane, would do with the company when he replaces Martin Gilbert in January, who is stepping down after 27 years.

($1 = 0.6087 British pounds)

(Editing by Erica Billingham)

By Kate Holton and Chris Vellacott

ę Reuters 2013
Stocks mentioned in the article
ChangeLast1st jan.
FIRSTGROUP PLC 1.70% 92.6 Delayed Quote.23.04%
NATIONAL EXPRESS GROUP PLC 1.90% 236.2 Delayed Quote.-2.36%
STAGECOACH GROUP PLC 0.80% 82.2 Delayed Quote.10.13%
THE GO-AHEAD GROUP PLC 3.79% 821.5 Delayed Quote.-19.60%
WESTPAC BANKING CORPORATION 0.47% 25.39 End-of-day quote.31.08%
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Analyst Recommendations on FIRSTGROUP PLC
More recommendations
Sales 2022 5 113 M 7 031 M 7 031 M
Net income 2022 3,43 M 4,71 M 4,71 M
Net Debt 2022 1 317 M 1 811 M 1 811 M
P/E ratio 2022 219x
Yield 2022 6,43%
Capitalization 1 099 M 1 513 M 1 512 M
EV / Sales 2022 0,47x
EV / Sales 2023 0,45x
Nbr of Employees 100 807
Free-Float 98,1%
Duration : Period :
FirstGroup plc Technical Analysis Chart | FGP | GB0003452173 | MarketScreener
Technical analysis trends FIRSTGROUP PLC
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 9
Last Close Price 91,05 GBX
Average target price 91,75 GBX
Spread / Average Target 0,77%
EPS Revisions
Managers and Directors
Ryan Dirk Mangold Chief Financial Officer & Executive Director
David Robert Martin Executive Chairman
Warwick Brady Independent Non-Executive Director
Julia Steyn Independent Non-Executive Director
Sally Joanne Cabrini Independent Non-Executive Director
Sector and Competitors