Activist investor demands changes at UK's FirstGroup

Wed Dec 11, 2013 6:05am EST
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By Kate Holton

LONDON (Reuters) - U.S. activist shareholder Sandell Asset Management went public on Wednesday with a demand for British transport operator FirstGroup (FGP.L: Quote) to split off its U.S. business to invest in its domestic arm.

Sandell, which owns just over 3 percent of the struggling company, wrote to the directors of FirstGroup to urge them to spin off and float the U.S. unit which includes the yellow school buses that operate across 38 states in the United States.

It also called for the group to sell the iconic Greyhound bus service, which transports 18 million passengers across America each year.

A spin off and disposal of the U.S. assets could appeal to yield-hungry North American shareholders and to industry buyers due to its strong brand and cash-flow generation, the investor said, enabling the group to invest in its British bus business and bid in future rail franchises.

"Our established track record in company analysis and our sector expertise tells us that FirstGroup can turn around its historic poor performance by focusing on its UK Rail and Bus businesses," Chief Executive Tom Sandell said in a statement.

FirstGroup rejected the proposal, saying it contained structural flaws and inaccuracies.

The high-profile attack caps a torrid year for the leading transport operator in Britain and North America, after it launched a discounted rights issue to raise 615 million pounds to pay down debt and avoid its credit rating turning to junk.

FirstGroup has struggled to reduce its borrowings, much of which were incurred by the 1.9 billion pound acquisition of U.S. bus business Laidlaw in 2007. It was also hit last year by the loss of a lucrative deal to run Britain's West Coast Main Line when the government found flaws in the bidding process.   Continued...

A greyhound sits beside a Greyhound bus at the launch of FirstGroup's new Greyhound UK service in London August 19, 2009. REUTERS/Luke MacGregor