SHARES in FirstGroup leapt nearly four per cent after the transport giant unveiled plans for a major shake-up, which could see it hive off its bus operation and stop bidding for future rail franchises in the UK.
But the strategy failed to impress the activist investor bidding to oust the board of the Aberdeen-based group, which branded the plans confusing and the wrong way to go about improving shareholder value.
Coast Capital, the biggest shareholder in FirstGroup with a 9.77% stake, declared it was “not happy with the strategy at all”, stating that it will continue its campaign to remove more than half of the board.
READ MORE: Scott Wright: Battle for FirstGroup destined to rumble on
FirstGroup reported yesterday that annual losses had narrowed to £97.9 million in the year ended March 31, down from £326.9m last time when it slashed the value of its Greyhound inter-city coach business in the US. The latest losses reflected a provision of £102.1m on the South Western Railway franchise it runs in a joint venture with MTR of Hong Kong, which was beset by strike action and historic infrastructure challenges.
FirstGroup said the move rationalise its current five businesses in the UK and US would ultimately lead to it focusing on its dominant First Student and First Transit businesses across the Atlantic. It has no plans to move its stock market listing from London to the US.
As part of the strategy, it has begun the process of seeking a buyer for Greyhound, stating that a sale would deliver best value of shareholders after investing in technologies to improve its efficiencies and ticketing services. It noted that it had also reduced Greyhound’s footprint in Western Canada and continues to slim its property portfolio.
READ MORE: US bid to oust board at bus and rail giant
But the more radical proposals, from a UK perspective, signalled by the company could see it exit First Bus and step back from bidding for further rail franchises. FirstGroup said there are “limited synergies” now open to the bus division after taking steps to boost services for passengers and streamline the operation, which helped lift margins to 7.5 per cent last year.
On rail, the company said that, in light of “reduced expectations” for its South Western Railway and TransPennine Express franchises, “we have concerns with the current balance of risk and reward being offered”.
Noting that it awaits the outcome of the Williams Review , which will examine the franchise system, FirstGroup added: “Any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders.”
Chief executive Matthew Gregory declared that a more streamlined portfolio leading with First Student and First Transit is the “most appropriate means for us to deliver enhanced sustainable value for all our shareholders”.
But the plans were met with a hostile response from Coast Capital, which has accused the current leadership of presiding over a “track record of value destruction and under-performance”.
The investor is demanding an extraordinary general meeting of FirstGroup to call on shareholders to remove six of the current eleven directors, including Mr Gregory and chairman Wolfhart Hauser. It wants to replace them with seven of its nominees, whom it says have the necessary transport and turnaround expertise to revive the company’s fortunes. These include the former Arriva chief executive David Martin and ex-UK transport minister Steve Norris.
Asked to comment on the new FirstGroup strategy, Coast Capital partner Chad Tappendorf said the investor was a “bit confused” by the plans. He questioned the logic of holding a “fire sale” of assets and pulling back from UK rail franchise bids, while maintaining “two crown jewel assets in the US in a UK holdco structure”.
“Furthermore, I don’t think that the current board can be entrusted to properly dispose of these assets and create the right value for shareholders,” he added. “At the end of the day you still need proper board members that have relevant transportation, turnaround and governance experience.”
Mr Gregory dismissed Coast’s plans as “inconsistent, ill-thought-out and riddled with errors”.
Shares closed up 4p, or 3.6%, at 114.4p.
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