Greyhound sell-off plan rests on wishful thinking
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Version 0 of 1. FirstGroup's $3.5bn (£2.1bn) acquisition in 2007 of US business Laidlaw was a stinker. The UK bus-and-rail firm paid too much, and at the wrong time. As the financial crisis hit, it was unable to sell long-distance US operator Greyhound, which was the original plan. The result was a long struggle to pay down debt that ended in failure when the desperately-needed UK west coast mainline franchise did not materialise (the Department for Transport bungled the bidding process). An embarrassing £615m rights issue followed this May and FirstGroup's share price, once 700p, completed its journey to 100p, roughly where it started life at flotation in 1995. So, in theory, FirstGroup is vulnerable to a spot of agitation from the wings. Sandell Asset Management, a US activist fund, has turned up a 3% stake and makes the reasonable point that it's about time FirstGroup got its act together. But that's the only solid part of Sandell's pitch. Its two big ideas – put Greyhound up for sale and spin off the rest of the US division, including the yellow bus student operation, via a US listing – pile assumption upon assumption. Bidders, apparently, are queuing up to buy Greyhound. Really? If they are, they are free today to make silly offers. As for a spin-off of FirstGroup US, Sandell claims a "yield-hungry North American shareholder base" would pay a premium. Again, the assertion looks like a piece of wishful thinking that rests on the uncertain premise that FirstGroup's share price labours under a conglomerate discount. The time to test that view is surely when the businesses themselves have been made to perform better. As Liberum's analyst puts it: "Selling underperforming assets when they are cyclically depressed is unlikely to realise more value than restructuring them." Quite. FirstGroup, for the time being, should refrain from hopeful instant cures and stick to the harder road of making day-to-day improvements. Sandall's talk of an instant gain in shareholder value of 50% under its plan is finger-in-the-air stuff. The open question is whether a shake-up of executive management is required to inject urgency into FirstGroup's self-help programme. That's one for busy-bee John McFarlane to determine when he arrives as chairman in January. Our editors' picks for the day's top news and commentary delivered to your inbox each morning. |