Aberdeen-based bus and rail giant FirstGroup said on Thursday its board has unanimously rejected a £1.23 billion cash and shares takeover approach from US private equity group I Squared Capital Advisors (UK) LLP.
The approach valued FirstGroup at up to 163.6p per share. FirstGroup shares are trading around 136p.
FirstGroup said the cash component in the I Squared approach of 118p per FirstGroup share “significantly undervalues FirstGroup’s continuing operations and its future prospects” and the contingent right to up to 45.6p per FirstGroup share “does not provide shareholders with sufficient certainty.”
I Squared is now required to either announce a firm intention to make an offer for FirstGroup by June 23 or walk away.
FirstGroup is the UK’s biggest train operator as the main shareholder in four UK rail franchises: Great Western Railway, South Western Railway, TransPennine Express and Avanti West Coast.
The firm is also the UK’s second-biggest operator of regional buses, serving two-thirds of the UK’s 15 largest conurbations including Glasgow, Bristol and Leeds.
FirstGroup said in a stock exchange statement: “On 26 May 2022, FirstGroup plc confirmed that it had received a series of unsolicited, conditional proposals from I Squared Capital Advisors (UK) LLP in relation to a possible offer for the entire issued, and to be issued, share capital of the company by funds managed by I Squared …
“As set out in the 26 May Announcement, the latest proposal received from I Squared on 25 May 2022 provided for a cash component of 118 pence per FirstGroup share and a contingent right to up to a further 45.6 pence per FirstGroup share based on the outcome of the First Transit earnout and the net proceeds realised from the Greyhound legacy assets and liabilities.
“The board, having carefully evaluated the proposal together with its advisers, concluded that the cash component of 118 pence per FirstGroup share significantly undervalues FirstGroup’s continuing operations and its future prospects, and the contingent right to up to 45.6 pence per FirstGroup share does not provide shareholders with sufficient certainty.
“Accordingly, the board has unanimously rejected the proposal.
“The company expects to announce its results for the year ended 26 March 2022 on 14 June 2022.”
FirstGroup’s biggest shareholder — asset manager Schroders, with a near-18% stake — had already urged it to reject the takeover approach from I Squared.
Schroders UK equity fund manager Andy Simpson had said: “The proposal is highly conditional and leaves shareholders exposed to downside risks at a time when we believe the stand-alone company has attractive growth prospects, a strong balance sheet and a depressed valuation.
“We firmly believe that any offer needs to fairly reflect the attractive characteristics and scarcity value of the underlying assets.”