By Kristy Dorsey

FirstGroup has promised an extra £135 million pay-out to shareholders after completing the unpopular sale of two US businesses to private equity firm EQT Infrastructure.

The company is now proposing the return of £500m to investors this autumn, equivalent to approximately 41p per share and up from the previous figure of £365m. The company said the additional pay-out was made possible by higher-than-expected cash proceeds from the deal, and an improvement in cash flow from its UK operations as pandemic restrictions have eased.

Just over six in 10 shareholders voted in favour of the £3.3 billion deal in May following opposition from the Aberdeen-headquartered group’s two biggest shareholders. The largest, Coast Capital, likened the First Student school bus and First Transit divisions as “crown jewel assets” that were being sold at “less than book value”.

FirstGroup chairman David Martin said yesterday that the company was pleased to have complete the deal, along with the “significant increase” in the proposed return of value to shareholders.

READ MORE: Investors revolt over FirstGroup's US sale plan

“This delivers on our strategic objective and creates a focused and stronger business with a bright future,” he added. “The vital role of public transport in the UK has never been clearer, and with the most supportive policy backdrop in decades coupled with our strong credentials, FirstGroup is in prime position to deliver on its goals with a well-capitalised balance sheet and an operating model that will support attractive dividends.”

FirstGroup announced in December 2019 that it was putting its US businesses up for sale. First Student operates approximately 40,000 of the distinctive yellow school buses used in the US, making it the largest provider of student transportation in North America with operations in 435 locations across 40 US states and seven Canadian provinces.

First Transit is among the largest private sector providers of public transit management and contracting services in North America. It conducted more than 300 million passenger journeys in 2020 and owns or operates 12,500 vehicles.

Meanwhile, the company continues to pursue exit options for its long-haul Greyhound coach business in the US.

READ MORE: FirstGroup scores on major US property disposals

In the UK, it operates the Great Western Railway, South Western Railway, the TransPennine Express and Avanti West Coast. It is also Britain’s largest bus operator, with a fleet of nearly 9,000 providing more than 20 per cent of all local bus services.

The US disposals will allow FirstGroup to make a £336m contribution to it UK defined benefit pension schemes and address other long-standing liabilities, including those related to the Greyhound business.

Net proceeds from the disposal came in at $3.1bn (£2.3bn), an increase of $58m over the base amount previously announced, due to final adjustments for working capital and debt items. FirstGroup noted that it will also receive an earnout payment worth up to $240m based on 62.5% of First Transit’s value above $380m, which will be paid either in three years or upon the sale of the business by EQT, whichever is first.

“We have delivered this transformational sale which resolves the group’s long-standing legacy liabilities, puts the group in a strong position to benefit from its many opportunities, and releases £500m of value to return to shareholders,” chief executive Matthew Gregory said.

READ MORE: Aberdeen bus giant welcomes fresh cash from DfT

“I would like to thank everyone in First Student and First Transit for the pivotal role they play in their communities. As part of the FirstGroup family for many years, they have gone from strength to strength, and I am confident that they will continue to flourish as part of EQT Infrastructure.”

First Student and First Transit will be reported as discontinued operations in the group’s annual results to the end of March 2021, which will be announced on Tuesday of next week.

In December, the group reported a narrower loss of £100.1m for the first half of this financial year, down from £187.1m in the same period a year earlier. Revenues fell by 12% to £3.1bn.

Shares in FirstGroup – which along with other transport providers has received substantial government assistance to maintain services through the pandemic – closed more than 3% higher yesterday at 82p.