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FirstGroup to sell Greyhound as it bows to activist investors FirstGroup confirms sale of UK bus division to focus on US business
(about 8 hours later)
FirstGroup has announced it will break up its business, sell its US coach line Greyhound, and possibly withdraw from UK rail operations, following pressure from major shareholders. FirstGroup, one of the biggest British transport companies, is set to turn its back on the UK by selling off its bus division and possibly withdrawing from UK rail operations, following pressure from major shareholders.
The Aberdeen-based transport group said it would spin off its profitable UK First Bus operations, as it announced surging revenues but made a £97m pretax loss. The Aberdeen-based group announced it will focus on the US, although it plans to sell off the famous Greyhound coach line, as it reported surging revenues but made a £98m pretax loss.
The company said that in future, its core market would be North America, focused on its school bus operations – First Student and First Transit – which generated 60% of operating profits. The company said that in future, its core market would be North America, where its school bus operations – First Student and First Transit – generated 60% of operating profits.
FirstGroup’s uncomfortable rail journey isn’t over yet The activist investor Coast Capital, the largest single shareholder with a 10% holding, has been pushing for a separation of the US and UK businesses and to replace the board, having declared First’s strategy – and particularly its UK rail investment – as “extraordinarily destructive of capital”.
But Greyhound, which carries about 17 million passengers a year on its scheduled intercity coaches, had “limited synergies” with those businesses, which meant “value for shareholders can best be delivered by seeking new owners”, the company said.
The activist investor Coast Capital, the largest single shareholder with a 10% holding, has been pushing for a separation of the US and UK businesses and to replace the board, having declared First’s strategy – and particularly rail investment – as “extraordinarily destructive of capital”.
That was underscored in First’s full-year results, released on Thursday, when the group took a £102m hit from future losses on its South Western Railway franchise.That was underscored in First’s full-year results, released on Thursday, when the group took a £102m hit from future losses on its South Western Railway franchise.
The group’s chief executive, Matthew Gregory, said the trading performance was ahead of expectations for the year, but he signalled that First’s long involvement in UK rail could be coming to an end. First’s woes were exacerbated with the announcement of fresh industrial action on South Western, after a pause in the long-running dispute over the role of guards. The RMT announced five days of strikes from 18 June.
“We have concerns with the current balance of risk and reward being offered. We await the outcome of the Williams review as it seeks to address these and other industry issues,” he said. First also operates Great Western Railway and TransPennine Express, as well as the small, open access passenger rail service, Hull Trains.
“Any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders.” The group’s chief executive, Matthew Gregory, said it was “looking at all options” for First Bus, from a demerger to a sale in parts.
First is on a shortlist of two for the West Coast Partnership, against a Chinese consortium, for the rights to run intercity trains including the first HS2 high-speed services from 2026. Unions said there were major concerns over possible redundancies in the bus division, which carries 1.6 million passengers a day in many UK urban areas outside London. Unite warned losses would not be tolerated, and the RMT and TSSA unions called for First’s bus and rail operations to be taken into public hands.
City analysts broadly welcomed the move. Gerald Khoo of Liberum said: “Moving towards a breakup is positive, but after many years of travelling, arriving is more important than ever. We expect a muted response until there is evidence of progress towards disposals.” Gregory signalled that First’s long involvement in UK rail could be coming to an end. “We have concerns with the current balance of risk and reward being offered. We await the outcome of the Williams review as it seeks to address these and other industry issues,” he said.
He said the changes went some way towards Coast’s demands, but added: “We doubt they will be satisfied, although we believe the board may have bought itself some time to execute.” First is on a shortlist of two for the West Coast Partnership, against a Chinese consortium, for the rights to run intercity trains including the first HS2 high-speed services from 2026. Bidding rules meant Gregory was unable to comment on whether First would maintain its interest. It withdrew from the shortlist for the East Midlands franchise last year.
Gregory defended the price First paid for South Western, saying that the group “absolutely did not” overbid, despite the £102m writedown which he described as a “prudent provision” while negotiations continue with the Department for Transport for compensation.
He said that problems with the infrastructure and strikes had hit performance and it was “very uncertain where future revenues are going to recover.”
Despite the focus on the US, Greyhound, which carries about 17 million passengers a year on its scheduled intercity coaches, will be sold off.
Gregory denied that Coast had forced his hand: “We’ve been talking for at least a year about how to unlock the value in the group ... We haven’t just concocted that in the last two weeks.”
He also hit out at the US private equity group: “Their plan is really to take over the board of a UK listed plc without paying a premium for the business. They’re looking for us to take on more debt, the plans are incoherent inconsistent with a lot of factual inaccuracies.”
While the chief executive said there were no plans at present to change First’s UK listing or head office, he added: “Once we get through this we might reconsider it.”
He declined to put a timescale on the sell-offs but said it would take at least six months.
FirstGroup’s uncomfortable rail journey isn’t over yet
However, Chad Tuppendorf, partner at Coast Capital, indicated that they would be pushing hard for a date for an emergency meeting to replace seven board members.
He said the restructuring plan was “too little, too late”, adding: “We’re confused by how you maximise profits with no one with relevant transportation experience on the board. We can’t entrust this management team to properly dispose of Greyhound - the last two disposals [of Chicago property and Manchester bus operations] have destroyed an incredible amount of value.”
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