FirstGroup activist investor Coast Capital to sell stake

Aberdeen-based transport firm FirstGroup plc has launched its proposed return of up to £500 million to its shareholders via a tender offer at 105p per share.

That’s a premium of 9.2% to the closing price of its shares on October 26.

The tender offer is subject to shareholder approval — but FirstGroup said it has received an irrevocable undertaking from activist shareholder Coast Capital Management to support the plan and tender its full 12.82% shareholding in the firm.

New York-based hedge fund Coast Capital had opposed the recent £3.3 billion sale of FirstGroup’s North American businesses First Student and First Transit to Stockholm-based investment firm EQT Infrastructure, arguing the price was too low.

FirstGroup shares rose 5% to 101p on Wednesday.

“On 22 July 2021, FirstGroup completed the disposal of its First Student and First Transit businesses to EQT Infrastructure for net disposal proceeds of $3,123 million,” said FirstGroup in a stock exchange statement.

“On the same date, FirstGroup announced its intention to increase the proposed return of value to £500 million from £365 million previously.

“Following consultation with shareholders, the board has decided that the appropriate first step is to conduct the return of value by way of the tender offer.

“Shareholders are therefore being invited to tender some or all of their ordinary shares for purchase on the terms and subject to the conditions set out in the circular to be published today.

“Shareholders may decide not to participate fully or partially in the tender offer for a number of reasons, including their view of the potential for the value of the company to increase in the future.

“If the full £500 million is not returned to shareholders through the tender offer, the board intends to undertake a second phase of the return of value to return any remaining surplus cash following completion of the tender offer to shareholders.

“If required, it is expected that this second phase would take place by way of a share buyback of up to approximately £50 million, with any meaningful surplus above this amount being returned by way of a special dividend (with accompanying consolidation and sub-division of the company’s share capital (the ‘share consolidation’)).

“In addition to the return of value, the board reiterates its commitment to keeping the balance sheet position of the group under review and will consider the prospects for making further additional distributions to shareholders in due course, following crystallisation of the First Transit Earnout of up to $240 million (fair valued in the group’s recent full year results at $140 million (£102 million) for accounting purposes), realisation of value from the sale of the properties retained and consideration deferred in the recent sale of Greyhound Lines Inc. to FlixMobility GmbH, and the potential release of monies from pension escrow (of up to £117 million).

“The board also notes the capacity to increase gearing over time, as end market conditions and hence business performance improves.”

FirstGroup executive chairman David Martin said: “I am very pleased to announce the launch of the proposed tender offer.

“This marks the culmination of our portfolio rationalisation strategy, as announced in December 2019, which has refocused the group on its leading UK public transport businesses.

“In doing so, we have created a cash generative company with a well-capitalised balance sheet, a focused strategy and attractive growth prospects in our markets.

“The policy backdrop in the UK has never been more supportive and public transport has a critical role to play in helping communities and economies build back better and more sustainably.

“The premium for the tender offer reflects our confidence in our future prospects, as well as the substantial further sums expected to be realised by the group over time from the disposals completed this year.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.