Buyer scrum to pick off FirstGroup’s US divisions

Linda J. Dodson

Some of the world’s biggest buyout funds are circling FirstGroup’s American business as the top investor in the embattled bus and rail operator launches a fresh boardroom coup.

The Sunday Telegraph has learnt Canary Wharf owner Brookfield, Apollo Global Management and KKR are among a slew of potential suitors for FirstStudent and FirstTransit.

Sources said FirstGroup’s financial advisers had restarted a sales process in recent weeks and attracted significant private equity interest.

I Squared Capital, the owner of Energia, one of Ireland’s two main energy firms, is also understood to have registered interest.

FirstGroup hoisted a for-sale sign over its most profitable two divisions in March, with analysts estimating the pair could fetch around $4bn (£3bn) – several times the company’s market value at that point. The sale was put on hold as the pandemic hit.

FirstGroup shares have plummeted as a result of the pandemic, with the operator now worth around £485m.

The auction followed an acrimonious campaign by Coast Capital Management, the FTSE 250 firm’s biggest shareholder, culminating in the ousting of Wolfhart Hauser, the chairman, in May last year. David Martin, the former boss of rival Arriva, was appointed in his place.

At the time, the US activist was supported by a number of Square Mile fund managers, such as Columbia Threadneedle and Schroders. 

The Telegraph can reveal that Coast now plans to vote against the re-election of the board at FirstGroup’s annual general meeting on Sept 15.

However, while “frustration” persists among large shareholders this side of the Atlantic, City sources said a major revolt was not on the cards, with many confident Mr Martin could deliver on his promise to sell off the US assets.

It is expected that a deal will be agreed by the end of this year, ahead of formal completion in the second quarter of 2021, they added.

James Rasteh, Coast’s chief investment officer, criticised FirstGroup bosses over a decision not to obtain additional breathing space from its banks earlier this year.

“[It is] the only one of its peers to issue a ‘material uncertainty statement’,” he said. “Investors must hold both Matthew Gregory and David Robbie, the CEO and chairman of the audit committee respectively, and deemed financial experts, responsible. There are clearly improvements still to be made to the board and top management team. The divisional managers we have deep faith in.

“The company has great assets that clearly do not belong together. Investors have for years advocated for a sale or spin-off of the North American assets to unlock material value, and the board has fought its own investors, and destroyed value, every step of the way.”

Mr Martin said: “I am confident the board has the necessary mix of skills, experience and knowledge to unlock material value for all shareholders through the sale of our North American businesses. 

“We are intent on achieving this sale without distraction or delay, and are encouraged by significant interest from potential buyers.

“Since the start of the pandemic, we have taken swift and decisive actions to protect the business for the longer term. We have increased our available liquidity and we will continue to do all that is necessary to ensure the group is in the most robust position possible to deliver on our strategic plans.”

Brookfield, Apollo and KKR declined to comment.  I Squared did not respond to a request for comment.

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