Having announced in March that it was looking to sell its US First Student and First Transit divisions as a result of an ongoing campaign by investors, shares in First Group rose last week after reports that a number of buyers have shown interest its US operations. CityAM reported that shares rose by over 15% on Monday to a high of 50.45p following reports in the Sunday Telegraph that showed interest from a number of firms, including three of the world’s largest buyout funds: the report named Canary Wharf owner Brookfield, KKR and Apollo Global Management as potential buyers for the Group’s US divisions, alongside I Squared Capital which owns Irish energy giant Energia.
For over a year, activist hedge fund Coast Capital, which has a 10% stake in FirstGroup, as well as British-Iranian property tycoon Robbie Tchenguiz, had both been putting pressure on the company to rid itself of its US-based operations, which Coast said were worth “notably more” than their book value of 100p per share, estimating a price of 165p for each.
Alongside all operators, First has seen financial pressures increase and its market value fall as a result of the coronavirus pandemic, and the sale would release cash to support other areas of the business, which reported a £153m loss in July for the latest financial year, prompting fears for the ongoing survival of the company.
Although passenger numbers have begun to rise, figures across bus and rail remain significantly below normal and it remains to be seen how long it will take to return to anything approaching pre-Covid levels on both modes and what long-term support the government will offer. On its Transpennine Express, Great Western and Avanti West Coast rail franchises, First is awaiting the extension of the DfT’s emergency agreements for rail services. The current agreements, whereby the DfT waives the operator’s revenue, cost and contingent capital risk, and pays a fixed management fee with the potential for a small performance-based payment, expire this month.
During the week, the share price has again dropped back to around 41p, up from a low of little more than 31p in late August.