Activist investor calls for breakup of UK's FirstGroup

Wed Dec 11, 2013 9:33am EST
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By Kate Holton and Chris Vellacott

LONDON (Reuters) - U.S. activist investor Sandell Asset Management demanded British transport operator FirstGroup (FGP.L: Quote) split off its U.S. business, owner of the yellow school buses that operate across the country, to invest in its domestic arm.

The hedge fund's public attack caps a torrid year for FirstGroup, the leading transport operator in Britain and North America that handles more than 2.5 billion passengers a year.

In May the company had to raise 615 million pounds ($1.0 billion) to avoid its credit rating being cut to "junk" and scrapped its final dividend to fund investment.

Sandell, which owns just over 3 percent of FirstGroup, wrote to the directors urging them to spin off and list the U.S. business on the stock market.

It also called for the group, which was hit last year by the loss of a lucrative deal to run Britain's West Coast Main Line railway, to sell the Greyhound bus service that transports 18 million passengers across America each year.

Sandell said on Wednesday a break-up would enable FirstGroup to fund a much-needed investment program in its British bus business and to bid from a position of strength when the next round of rail franchises come up for tender.

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

Analysts said it was too soon to sell the U.S. business, with the American economy still recovering and many of those who used FirstGroup's U.S. buses yet to feel any improvement in their fortunes.   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