FirstGroup offloads US businesses despite shareholder rebellion

Shareholders in train and bus operator FirstGroup have narrowly voted in favour of allowing the firm to sell its US school bus and transit divisions for £3.3 billion.

Just 61.3% of investors voted in favour of the deal with 38.7% rejecting it.

Only 50% of shareholders needed to agree to the deal for it to be approved.

FirstGroup’s largest shareholder, activist investor Coast Capital, had said it would vote against the deal, saying it undervalued the divisions.

Following the vote, the investor said it is considering its options on future action over the deal.

It added: “In spite of numerous representations made by Coast and by other institutional investors and advisors to FirstGroup’s board and management team, in which concerns were raised about the rushed, opaque, poorly timed, and uncompetitive sales process, the low valuation of the deal, the lack of fairness opinion, the company continued to press ahead with this value destroying transaction.

“It is no surprise therefore that the market is not positively greeting the sale of crown jewel assets at less than book value.”

First Group rail franchises
FirstGroup will focus on its UK operations, including the Avanti West Coast line, after the sale of two North American divisions (Luciana Guerra/PA)

Coast wrote to FirstGroup’s board demanding Thursday’s vote be pushed back by 60 days to allow for an independent valuation for the First Student and First Transit businesses.

But the train and bus firm refused and pushed forward with the vote, which was also criticised by the company’s second-largest shareholder Schroders.

Chairman David Martin said after the vote: “I and the whole board take very seriously our responsibility to understand the different views and perspectives of investors, and recognise that a number of shareholders did not vote in favour of today’s resolution.

“As FirstGroup enters a new and exciting phase in its development, I look forward to continuing an open and constructive dialogue with all shareholders as we look to the future.”

Bosses offloaded the First Student and First Transit businesses to EQT Infrastructure more than a year after first announcing plans to quit North America following pressure from activist investors.

First Student operates around 43,000 highly-distinctive school buses in the US, while First Transit runs local bus and transport services.

The cash raised from the deal will be used to pay down debts, including £300 million borrowed from the UK Government as part of Covid-19 support loans.

Around £336 million will be added to the UK Bus and Group pension schemes and £365 million will be handed over to shareholders in a dividend later this year.

Plans to sell FirstGroup’s Greyhound coach business in the US continue and bosses hope to hand out more cash as suitors are tapped up.

The sale of the two divisions comes a year after Coast attempted to stage a boardroom coup.

According to filings, Coast has a 13.8% stake in FirstGroup and wanted the business to sell off its North American division after failing in its attempts to replace several board members.

But Coast said the deal with EQT was a “destructive disposal” that undervalued the business.

Columbia Threadneedle Investments, the third-largest shareholder with a stake of about 10%, and three proxy advisory agencies had voiced support for the sale.

FirstGroup will now focus attention on its Great Western Railway, South Western Railway, TransPennine Express and Avanti West Coast lines, alongside local bus routes in the UK.