FirstGroup has rejected a £1.23bn takeover bid from a private equity firm, saying it “significantly undervalues” the UK transport company.
The FTSE 250 group, which is the UK’s biggest train operator, confirmed last month that it had received a series of unsolicited, conditional proposals from I Squared Capital, a private equity firm that focuses on global infrastructure investments.
The UK bus and train company said at the time that it was considering the offer, consisting of a cash component of 118p a share and a “contingent right” of up to 45.6p a share. The contingent element was based on potential payouts from the sale last year of FirstGroup’s US transit and Greyhound bus businesses.
The latest takeover bid came after FirstGroup emerged from a testing period, with pressure from activist investors, management changes, and the sale of its US assets.
However, FirstGroup said on Thursday that it had “unanimously rejected the proposal”, which would have valued the Aberdeen-based company’s equity at £1.23bn.
The group said the board and its advisers “concluded that the cash component of 118p per FirstGroup share significantly undervalues FirstGroup’s continuing operations and its future prospects”.
It added that the contingent right component “does not provide shareholders with sufficient certainty”. Shares in FirstGroup were flat at 136p after news of the rejection.
The company, which is the main shareholder in four UK rail franchises, has endured a tough few years.
Since 2019 it has battled a group of investors who ultimately ousted chief executive Matthew Gregory last year.
The activists, led by New York-based Coast Capital Management, were disgruntled with the £3.3bn FirstGroup received for the sale of its operations in the US.
Coast said FirstGroup’s management had bungled the deal to sell its FirstStudent and FirstTransit businesses to Swedish private equity group EQT by selling during the pandemic, substantially undervaluing the divisions.
The deal was eventually approved by shareholders despite the activists’ objections.
However, Coast said Gregory should be removed. David Martin was made executive chair until a permanent replacement was found.
Coast sold its stake last year through a tender offer, removing itself as one of FirstGroup’s largest shareholders.
Transport companies more broadly have struggled through the Covid-19 pandemic as the lockdown halted bus and rail traffic.
Train and bus businesses have also been grappling with the energy crisis as the cost of fuel has rocketed, exacerbated by sanctions on Russia as a result of its invasion of Ukraine.
FirstGroup’s UK rail franchises include Great Western Railway, South Western Railway, Transpennine Express and Avanti West Coast.
The company also runs Hull Trains and Lumo. It is the second-biggest operator of regional buses, providing services in Glasgow, Bristol and Leeds.
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