FirstGroup shares fall as potential buyer walks away

Shares of Aberdeen-based bus and rail giant FirstGroup plc fell about 11% to around £1.15 on Tuesday after infrastructure private equity group I Squared Capital Advisors (UK) LLP announced that it does not intend to make a firm takeover offer for FirstGroup.

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.

The Aberdeen company said in a stock exchange statement: “The unsolicited offers received from I Squared resulted in a final proposal on 15 August 2022 of 135 pence per FirstGroup share (comprising 133.9 pence plus the 1.1 pence final dividend being paid on 19 August 2022) together with further contingent value from the First Transit earnout.

“The board, having carefully evaluated the proposal together with its advisers, concluded that the cash component significantly undervalues FirstGroup’s continuing operations and its future prospects, and the contingent value does not provide shareholders with sufficient certainty.”

FirstGroup said it is a “cash generative, well capitalised business with a significantly de-risked balance sheet and strong positions in the UK bus and rail markets and, with new chief executive officer Graham Sutherland in place, has a resilient and robust platform from which to develop and maximise both organic and inorganic opportunities that exist for growth in the core business.”

Additionally, the firm said there is further value to be realised from FirstGroup’s non-core businesses which “include the value of the legacy Greyhound assets and residual liabilities as well as the value of the First Transit earnout.”

Furthermore, FirstGroup said that in First Bus “the group continues to progress towards delivering its 10% margin target and further passenger volume and yield growth over time, reflecting the focus on adapting operations to passenger demand and in managing the challenging inflationary environment as pandemic recovery funding tapers off.”

FirstGroup said it is also well placed to benefit from the £1 billion of funding announced by the UK government as part of the National Bus Strategy.

“In Rail, FirstGroup is well positioned to capitalise on the move to lower risk, long-term model of rail operations following the introduction of the National Rail Contracts, as evidenced by the recently announced agreements with the Department for Transport,” said FirstGroup.

“In addition, FirstGroup has a range of growth opportunities outside of the National Rail Contracts where it is well positioned to create further value.

“The board is confident the transformation undertaken since the arrival of David Martin as chairman in August 2019 will deliver significant long term value creation for FirstGroup shareholders.

“The board reaffirms its expectation that, while some uncertainty remains around the pace of recovery in light of the pandemic and the broader macroeconomic backdrop, the group will make significant further progress in the current financial year.”

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