U.K. Rail Operator FirstGroup Rejects Approach From ApolloBy
Buyout firm’s indicative offer too low, transport group says
Company valued at $1.9 billion as shares extend recent gains
British train and bus operator FirstGroup Plc said it rejected an “opportunistic” takeover proposal that private-equity firm Apollo Management made as the company struggles with under-performing rail routes in the U.K. and competition from discount airlines in the U.S.
The indicative bid from Apollo was highly conditional and too low, according to the operator of Britain’s Great Western rail line and the U.S.’s Greyhound bus brand. Shares of the Aberdeen, Scotland-based company jumped the most in almost two years, valuing the business at 1.35 billion pounds ($1.9 billion).
The offer “fundamentally undervalues the company and is opportunistic in nature,” the transport company said Wednesday in a statement after the market closed. “Accordingly, the board of FirstGroup has unanimously rejected the proposal.” It didn’t disclose any bid terms.
FirstGroup stock rose as much as 11 percent, the biggest intraday increase since June 2016. While the shares have gained 42 percent in the last 12 trading days, the stock remains little changed for the year because of a hit in March, when Chief Executive Officer Tim O’Toole warned that annual earnings per share would be lower than forecast after bad weather disrupted its North American operations.
Long-distance Greyhound services are facing intensifying competition from low-cost airlines, while the South Western Railway train franchise in Britain has seen its on-time performance decline amid infrastructure issues, FirstGroup has said. The company took over the commuter network serving London Waterloo station last summer.
Any purchaser of FirstGroup would face a number of “key challenges,” possibly explaining the highly conditional nature of the Apollo offer, according to Joe Spooner, an analyst at Jefferies International in London.
Those include debt last reported at 1.6 billion pounds, a 338 million-pound pension deficit, and two new rail franchises, SWR included, that were won “on full terms,” Spooner said in a note to clients.
Under U.K. takeover rules, Apollo has until May 9 to make its intentions clear, though there’s no certainty that a firm offer will be made, FirstGroup said. The U.K. company said it will comment further when appropriate.