15th Jan 2014 07:50
LONDON (Alliance News) - Sandell Asset Management Corp Wednesday called on FirstGroup PLC to reconsider its "premature" rejection of a plan it put forward calling on the company to split itself up and sell assets in order to drive shareholder value.
The bus and rail operator, which has UK rail and bus operations, and student transport, airport transit and the Greyhound bus unit in the US, rejected the proposal from one its biggest shareholders in December.
Activist fund manager Sandell, which has a 3.1% stake in FirstGroup, wants it to spin-off the US operations into a new company, sell the Greyhound bus operations, and use the proceeds to strengthen the balance sheet of the remaining UK business to better prepare it to make bids for UK rail franchises.
It said its plan would improve the valuation of the US operations, lower overall cost of capital and reduce debt and hence interest payments. That would give the company better focus, it says.
FirstGroup, meanwhile, has said it plans to invest about GBP1.6 billion in its divisions over the next four years. Its plan includes turning around the struggling US student transport business, maintaining margins in the transit business, growing Greyhound at rates above US GDP growth rates, boosting UK bus margins to double-digit levels and maintaining the UK rail unit as a market leader.
The two sides are continuing to talk. In its statement Wednesday, Sandell said its plan wasn't a replacement for a "sound turnaround plan", but should be carried out in conjunction with that plan. It said it believes the basic tenets behind the FirstGroup plan are sound, but is concerned about its execution.
"Sandell believes (its) proposals provide additional flexibility should the company's complex turnaround, involving significant investment over many years across several divisions globally, fail to materialise in the timeframe outlined," it said.
"We believe shareholders strongly support our ideas, and have been encouraged by their reaction since our engagement with the company became public. The board's statement that it remains open to shareholder feedback is encouraging and will allow for constructive and open engagement about ways to improve the company's performance and deliver value to shareholders," Sandell Chief Executive Tom Sandell said.
FirstGroup's targets include increasing total revenues at rates faster than the economies in which it operates, improving margins in the US student and UK bus units to double-digits, and achieving a post-tax return on capital employed of between 10% and 12%. It also wants to return to a progressive dividend policy of 2.0 to 2.5 times earnings cover.
In November, FirstGroup reported higher revenues and narrowed losses for the first half of the year, as growth in its UK rail unit offset further weakness in its UK bus operations and Greyhound buses in the US.
By Steve McGrath; [email protected]; @SteveMcGrath1
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