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FirstGroup Rejects Investor Sandell Proposal for Split-Up

Dec. 11 (Bloomberg) -- FirstGroup Plc, the U.K. rail company that owns Greyhound buses, said it opposes an investor plan to split the company and sell the iconic U.S. brand.

Shares of FirstGroup rose as much as 4.6 percent after the Aberdeen, Scotland-based company said in a statement today that U.S.-based Sandell Asset Management was seeking disposals.

FirstGroup should sell the Greyhound unit and list the remaining U.S. businesses, using proceeds to repay debt and grow U.K. rail and bus operations, Sandell said in a statement. FirstGroup has struggled since buying the bus brand’s owner, with its stock down 49 percent over the past five years, versus a 156 percent gain for its peer group, the investor said.

“The group has engaged with Sandell several times, reviewed their proposal in detail, and believes that it is not compelling and contains a number of structural flaws and inaccuracies,” Aberdeen-based FirstGroup said separately.

FirstGroup stock traded 2.3 percent higher at 118.70 pence as of 9:22 a.m. in London, paring its decline this year to 30 percent, for a value of 1.43 billion pounds ($2.35 billion).

The company, which operates trains in Scotland, northern England and from London to Wales, bought Greyhound owner Laidlaw in 2008, tripling net debt to 2.2 billion pounds.

‘Poor Performance’

Debt fell to 1.4 billion pounds at the half year, 30 percent lower than a year earlier, with underlying operating profit up 10 percent to 109.9 million pounds, FirstGroup said last month. Dividend payments were halted in May to focus on a rights offer.

“FirstGroup can turn around its historic poor performance by focusing on its U.K. rail and bus businesses,” Sandell Chief Executive Officer Tom Sandell said in the statement.

Sandell, which owns about 3 percent of FirstGroup stock, said shareholders would see a 50 percent return from a breakup, with the “buoyant current state” of U.S. capital markets creating a perfect transformation opportunity.

“There are good reasons to buy the shares, but this is not one of them,” Gerald Khoo, a London-based analyst at Liberum Capital with a “buy” rating on the stock, said of the Sandell proposal. “Selling underperforming assets when they are cyclically depressed is unlikely to realize more value than restructuring them and seeking an exit at a better point.”

Megabus Growth

Stagecoach Group Plc, a FirstGroup rival, said today it’s planning to expand its Megabus business in the U.S., with the roll-out of Sleeper overnight services and business-oriented Gold daytime operations currently limited to the U.K.

Megabus is a more of a niche player than Greyhound, which has national reach, Stagecoach CEO Martin Griffiths said in a telephone interview.

On whether it would be interested in Greyhound, Stagecoach said it doesn’t comment on speculation about another operator’s business. The Perth, Scotland-based company added that its North American activities are already successful and growing.

FirstGroup has scheduled a capital markets day for Jan. 23, where incoming Chairman John McFarlane, whose predecessor Martin Gilbert held the post for 17 years, will participate after taking on his new role on Jan. 1, the company said.

A program set out in May will restore consistent returns and cash generation, boosting shareholder value, it said.

To contact the reporter on this story: Robert Wall in London at

To contact the editor responsible for this story: Benedikt Kammel at

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