Activist investor Coast Capital will attempt to unseat FirstGroup’s board at meeting in London later this month, as group plots sale of UK bus business

 

 

FirstGroup’s board faces a showdown with activist investor Coast Capital at an extraordinary general meeting in London later this month. The gathering at 2pm on June 25 at the De Vere Grand Connaught Rooms in Holborn, London, will see New York-based Coast, a 10% shareholder of the group, attempt to unseat chief executive Matthew Gregory and five other directors.

The move comes despite plans announced by First late last month to sell off non-core operations, including the UK bus business upon which the group was built. The group declared that its future emphasis would be on its First Student and First Transit, “our core North American contracting businesses, which have the greatest potential to generate sustainable value and growth over time”.

Greyhound, the North American inter-urban coach operation, will also be sold. The group will continue to operate its portfolio of UK rail franchises, although it expressed concern about the balance of risk and reward.

Coast Capital is a fund with no track record or experience running any business similar to FirstGroup, and it has made a number of scatter-gun, inconsistent and unusual claims and proposals to the company over the past 12 months

FirstGroup’s board and Coast Capital each undermined the others’ credentials. Coast said that Gregory was “extraordinarily underqualified”. Meanwhile, a FirstGroup statement said: “Coast Capital is a fund with no track record or experience running any business similar to FirstGroup, and it has made a number of scatter-gun, inconsistent and unusual claims and proposals to the company over the past 12 months.”

Former transport minister Steven Norris is among the directors that Coast would like to appoint to First’s board, but the group questioned his credentials.

The groups’ statement said: “In nominating Steve Norris as a director, Coast Capital has highlighted his experience as a non-executive director of Capital CityBus, a small privately-owned local bus operator in London which was sold in 1998, more than 20 years ago, as evidence of his suitability to run our First Bus division. First Bus has a fleet of around 5,700 buses and 16,500 employees. Therefore the scale of Capital CityBus’s operations would be equivalent to less than 10% of the current operations of our First Bus division.”

However, associates of Norris this week told Passenger Transport that he was confident that Coast’s coup would succeed.

FirstGroup’s plans to dispose of First Bus, which was once Britain’s largest bus builder, will change the dynamic of the UK bus industry. It could see the end of the ‘Big Five’ that has dominated the market for the past 20 years.

Gregory said that First Bus, which operates a fifth of Britain’s buses outside of the regulated London market, had delivered
“a very good performance” in the year to March 21, 2019, but now it is time to sell.

“Bus has momentum and is on a path to improve profitability … we see continued improvement of coming year,” he told analysts. “Having driven the business to health, I believe that now is the right time to pursue structural alternatives.

“There are limited synergies with the rest of the group and it’s long-term liabilities are one of the largest drags on the group valuation. I believe that we are now positioned to generate value for this market-leading asset that also addresses the associated liabilities in a responsible way.”

Those liabilities, which include pensions, will complicate efforts to dispose of the bus businesses. Another issue is the considerable internal cross subsidy, with profitable operations like Glasgow and West Yorkshire offsetting losses elsewhere in the country.

It is understood that management teams are considering efforts to purchase operations from their employer,
a move reminiscent of the break-up and sale of the National Bus Company in the 1980s.

The separation from the group could be via a sale – either as a whole or in part – or by other means such as a demerger or partnership. We’re not ruling anything in or out at the moment, since we want to achieve the best outcome for everyone

A FirstGroup spokesman this week told Passenger Transport: “The separation from the group could be via a sale – either as a whole or in part – or by other means such as a demerger or partnership. We’re not ruling anything in or out at the moment, since we want to achieve the best outcome for everyone, including for employees and customers.

“That also means we can’t be specific about when we hope to conclude the process – we want to undertake this with appropriate pace, but we need to ensure it is done responsibly, and of course by following any regulatory procedures/consultations.

“What we can say is that as the process unfolds, we will continue to operate our services as usual, working closely with local authorities and our other partners and demonstrating our commitment to our customers through the service we offer them.”

 
This article appears in the latest issue of Passenger Transport.

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