Scottish transport giant FirstGroup rejects £1.2 billion US takeover bid

FirstGroup, the Scottish transport heavyweight, has rejected a £1.2 billion takeover proposal from an American serial suitor for being too low.

By Scott Reid
Thursday, 9th June 2022, 9:14 am
Updated Thursday, 9th June 2022, 9:14 am

The Aberdeen-headquartered group said the board believed the 118p-a-share upfront cash part of the unsolicited takeover approach from Miami-based I Squared Capital Advisors “significantly undervalued FirstGroup’s continuing operations and its future prospects”.

It added that the additional 45.6p-a-share part of the offer, which was based on some conditions, “does not provide shareholders with sufficient certainty”.

The bus and rail giant revealed late last month that it had received a new offer from I Squared, after a series of “unsolicited” and “conditional” proposals which had all previously been rejected.

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The cash part of the deal was worth about £885 million to shareholders, and the second could have handed them an additional £340m.

The US group had told the First board that the extra 45.6p part of the deal was based on how much the company made from the sales of its US First Transit and Greyhound businesses.

FirstGroup has a valuation of some £1.23bn based on the offer of 163.6p a share in total - a premium of 37 per cent compared with FirstGroup's closing price of 119.4p on May 25, before the offer was revealed.

Under City Takeover Panel rules, I Squared must make a firm offer by 5pm on June 23 or walk away

Aberdeen-headquartered FirstGroup operates one of the biggest bus fleets in the UK. Picture: John Devlin

News of the rejection comes ahead of FirstGroup’s annual results on Tuesday.

The firm has been in the activist investor firing line in recent years, with chief executive Matthew Gregory leaving last autumn after less than three years in the post and in the wake of demands for his resignation from the group’s biggest shareholder.

New York-based hedge fund Coast Capital made a call in July last year for Gregory, and two non-executive directors, to step down after it said the sale of First Student and First Transit in the US was too cheap and poorly timed at the peak of pandemic disruption.

FirstGroup has since tried to appease shareholders by announcing it will return £500m to them from the sale of the US school bus and transit divisions while also selling its US long-distance coaches arm Greyhound Lines to Germany’s FlixMobility.

In a trading update in February, FirstGroup said bus volumes had improved to more than 70 per cent of pre-pandemic levels overall since the easing of Omicron-related government restrictions.

First Rail management fee-based operations were said to be delivering “performance metrics in line with our expectations”, with the firm’s open access operations slightly ahead.

As well as being one of Britain’s major bus operators, the group is behind the new Lumo east coast open access rail service connecting Edinburgh and London.

Executive chairman David Martin said in February: “We now have a focused and simplified group and continue to enhance our financial strength and resilience by proactively managing the legacy assets and liabilities associated with last year’s portfolio rationalisation.

“We are pleased that passengers are returning to travel again following the easing of the Omicron-related restrictions put in place in December. It demonstrates our conviction that there is significant latent demand for travel on our services.”

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