FirstGroup Plc (FGP), the U.K. train operator that owns Greyhound buses, came under more pressure to split the business and sell the iconic U.S. brand as Sandell Asset Management renewed a call for a revamp of operations.
FirstGroup’s rejection of Sandell’s proposal on Dec. 11 for a reorganization was “premature,” the New York-based investment company said today as it presented a revised plan. Aberdeen, Scotland-based FirstGroup rejects the proposal as structurally flawed, a spokesman said by phone.
“We believe shareholders strongly support our ideas, and have been encouraged by their reaction since our engagement with the company became public,” Chief Executive Officer Tom Sandell said in a statement.
FirstGroup should dispose of the Greyhound unit and spin off stock in the remaining U.S. businesses to shareholders, using proceeds to repay debt and expand U.K. rail and bus operations, Sandell said. The actions should come in parallel with a turnaround project that management at FirstGroup has outlined, the investment company said. Sandell holds a stake of about 3.1 percent in the transport operator.
FirstGroup rose as much as 2.1 percent and was trading 0.1 percent higher at 140.80 pence as of 11:31 a.m. in London.
Sandell’s plan could boost the value of FirstGroup to as much as 191 pence per share with proceeds from a Greyhound sale reaching $555 million to $596 million, the investor said in a presentation.
The U.S. business will probably have adjusted earnings before interest, taxes and ammortization of $548 million in 2015, with the U.K. bus and train operations generating 127 million pounds ($206 million), Sandell said. The transaction wouldn’t trigger additional U.K. pension contribution requirements, it said.
The company, which runs trains in Scotland and northern England as well as rail routes linking London with Wales, bought Greyhound owner Laidlaw in 2008, tripling net debt to 2.2 billion pounds. FirstGroup reported net debt of 1.5 billion pounds as of Sept. 30, a 31 percent decline from a year earlier. Underlying operating profit in the fiscal six months through September rose 10 percent.
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