Following renewed pressure from activist investor Coast Capital, FirstGroup has announced the beginning of a formal sale process for its North American operations.
In a statement on Monday 9 March, Coast said that since a review of the North American operations was announced three months ago, shareholders had heard nothing from the company or its board, while the group’s share price had declined by 20%, and said it would request an extraordinary general meeting to force a demerger of First Student and First Transit unless the board announced a separation.
FirstGroup Chairman, David Martin, said: “We have now commenced a formal process to sell our North American contract businesses. We firmly believe that a sale of these assets is the best way to unlock material value for all FirstGroup shareholders, having completed a detailed review and analysis with advisers appointed by the Board to explore all options.”
FirstGroup Chief Executive Matthew Gregory added: “In First Student and First Transit we have well-invested long term contract businesses with excellent customer relationships, strong management teams and opportunities for growth, and we look forward to seeing these characteristics being reflected in the outcome of the formal sale process that is now underway.”
The Group said that there has been significant interest in the North American contract businesses, and Rothschild & Co, together with Goldman Sachs and JP Morgan Cazenove, have been appointed to lead the sale process. First Student and First Transit provide core contracted public transportation services across 40 US states and seven Canadian provinces. Both businesses are run in a decentralised way and will be capable of clean separation from FirstGroup’s other operations.
Financial and operational highlights of First Student and First Transit (as of 31 March 2019) include reported combined revenues of $3.8bn for the financial year ended 31 March 2019, of which $2.4bn is attributable to First Student, which has a wholly-owned fleet of 43,000 revenue-producing vehicles at over 460 locations, with an average fleet age under seven years, serving more than 1,000 contracts.
Negotiations around the sale of Greyhound are ongoing. The Group reported ongoing challenging trading conditions, citing further reductions in fuel price which typically makes travel by car more cost-competitive, continuing reductions in immigration-related demand in the southern border states and intensifying competition in several markets from both coach and low-cost airline operators.
In the UK, the Group reports First Bus like-for-like passenger revenue growth at 2.0% in the period, with higher revenue per mile as a result of fare and network optimisation. Like-for-like passenger volumes were down 1.7% in the same time frame, which it said reflects the economic and political uncertainty and poor weather in the UK during the period. The Group said it will continue to prioritise investment in local markets where stakeholders support its ambitions to deliver thriving and sustainable bus services, and is pleased with the growing recognition at all levels of government that buses have a huge role to play in achieving social and environmental ambitions and improving local economies. In particular, the Group welcomed the Government’s announcement in February of a new £5bn, five-year funding package which will include support for simpler fares, thousands of new green buses, improved routes and higher frequencies. Moving forward, the Group’s priority is to ensure First Bus is a more effective and efficient business and focus on achieving improved performance and a stronger bus division for the future.