FirstGroup Spurns Sandell Split Plan Saying Revamp to Spur Gains

FirstGroup Plc (FGP), the U.K. train operator that owns Greyhound buses, said an ongoing revamp of its business will yield higher investor returns than Sandell Asset Management’s proposal to split the company.

“The view of the board is very much that the best shareholder value comes from executing our turnaround plan,” Chris Surch, FirstGroup’s chief financial officer, said today in an interview. The latest Sandell plan is similar to one put forward in December and is opposed by the company, he said.

FirstGroup should dispose of Greyhound and spin off stock in the remaining U.S. business to shareholders, using proceeds to repay debt and expand in U.K. rail and bus, Sandell said. The actions could come in parallel to FirstGroup’s turnaround program, according to the New York-based investor, which holds a stake of about 3.1 percent in the transport operator.

“If management believe they’re going to get better market share or margins in the U.S. than they have now, they’re not going to want to monetize the business,” said Gert Zonneveld, an analyst at Panmure Gordon in London with a “hold” rating on FirstGroup. “If they don’t think they can add more value they might consider selling, but there’s no evidence of that.”

FirstGroup shares fell as much as 3.2 percent and were trading 2 percent lower at 140.20 pence as of 11:25 a.m. in London. The stock has advanced 20 percent since Sandell put forward its plan on Dec. 11 and is up 13 percent for the year, giving a market value of 1.69 billion pounds ($2.8 billion).

Weather Impact

Four of five divisions showed a strong performance in the fiscal third quarter, the Aberdeen, Scotland-based company said in a statement, with U.K. rail revenue gaining 6.3 percent.

The British government said today FirstGroup had been shortlisted to bid for the London-Scotland East Coast route in competition with a partnership of Stagecoach Group Plc (SGC) and Virgin Trains and another comprising the Keolis unit of French state railway SNCF and Channel Tunnel operator Eurostar Group Ltd. The company is also competing for the Caledonian Sleeper and ScotRail franchises and Ireland’s Luas light-rail service.

U.K. bus operations, a target for improvement, posted 2 percent sales growth and are on track for a return to margins of at lease 10 percent in the medium term, the company said.

First Transit, which operates public buses in locations including Chicago, is targeting a 7 percent annual sales gain.

While Greyhound’s revenue advanced 0.3 percent in the the third quarter even as the coldest weather for years gripped much of the U.S., the same icy snap weighed on the performance of the First Student yellow school bus operation.

The division, while “slightly ahead” of a $100 million cost savings target for the fiscal year, according to Surch, will deliver only a slightly improved return this year because of the impact of inflation and contractual price adjustments. Medium-term targets remain intact, the company said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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