18th Nov 2019 16:18
(Alliance News) - Coast Capital Management LP has become the second shareholder in FirstGroup PLC to demand the transmit company commit to a strategic review of its US businesses.
Coast holds more than 10% of FirstGroup.
Earlier Monday, the train and bus operator's largest individual shareholder, Robert Tchenguiz blasted the company's management and is asking for FirstGroup Chair David Martin to publicly announce his strategic plan announced in May.
Tchenguiz holds a 4.7% stake in FirstGroup.
Coast agreed, saying a "formal and transparent" strategic review is in the best interest of all investors. On top of that, Coast is demanding FirstGroup "immediately embark on a formal sale process of the US assets".
The activist investor continued: "Coast Capital agrees that there are no synergies between the UK and US assets of FirstGroup, and that a sale of the US assets would not only release meaningful value for shareholders, but would also allow these businesses and their invaluable employees and managers to thrive under a well-capitalized owner which would focus on technological developments, growth of operations, and employee participation in the divisions' success."
"The analyst community also agrees, in overwhelming majority, that the best course of action is an immediate monetization of the US assets," Coast added.
Turning to Tchenguiz, he said he is "very disappointed" in the management of FirstGroup, saying the company has "misled or at best confused the public" in its refusal to publicly announce its new strategic plan.
"The statements made were ambiguous, confusing and misleading, and suggested that the management of FirstGroup might still be committed to the defunct strategy presented by the deposed chair in May 2019. As a result, the investors suffered a massive 20% decline in the share price during the day," Tchenguiz said.
Shares in Firstgroup were up 3.1% in London on Monday at 117.30 pence each. FirstGroup closed at 106.10 pence on Thursday.
Tchenguiz said Martin's comments in the company's interim report on Thursday were in "direct contradiction with one another". Martin made it clear in the half-year report the company has met with major shareholders and is "clear" what they want and is "looking at all options", referencing the sale of the company's US units. He then said FirstGroup will focus on First Student and First Transit - FirstGroup's two core contracts in the US.
Tchenguiz added: "Key shareholders are not aware of what the strategy is – they have publicly on numerous occasions asked for a sale of the US business. Such a step would enable the company's operations to thrive under different, and more competent, ownership, and would release an important amount of value to investors."
He believes the rationale for a company based in Aberdeen, in north west Scotland, running a "vibrant" US business is "not the most effective or efficient" strategy.
"FirstGroup has no existing US shareholders of any significance although its largest asset is situated in the US. The business is geographically fragmented and not focused," Tchenguiz said.
The company responded Monday, saying it has been "clear" and its intent is to "realise value for all shareholders" and is "actively managing the entire portfolio by all appropriate means".
The transit firm said there is "significant" value to be unlocked from its portfolio, but admitted there is "limited synergies" between its UK and US businesses.
FirstGroup continued: "We note Tchenguiz's comment concerning our North American assets and in particular the sale of a competitor. First Student and First Transit are valuable assets and well positioned in markets with profitable growth. The board has been consistent and clear that the objective is to realise value and therefore were a credible and deliverable offer to be received for these or any other business in the portfolio then, of course, the board would give that serious consideration."
Tchenguiz, however, is adamant the company publicly announce it is conducting a strategic review stating it is considering the sale of its US units.
He said: "The right steps have already been taken by the company - which is the separation of the core businesses. Now a transparent strategic review should be conducted in parallel. The company is not making clear that it is conducting a Strategic Review. This omission begs the question as to whether the company is ignoring investors' requests in order to continue a flawed, status quo strategy presented in May?"
If FirstGroup does not announce a strategic review, Tchenguiz said he will ask for an extraordinary general meeting.
"It is important that steps are taken as soon as possible to identify value creation for investors, and to implement these steps as soon as practically possible, giving employees and clients of these assets in North America the ability to pursue an independent future under a more engaged, competent, and well capitalized ownership," he added.
FirstGroup replied by saying it believes it "would be in the best interests of all stakeholders" for the company to "get on" with its portfolio rationalisation "without further distraction or delay".
Elsewhere, the UK monopoly regulator on Monday opened its investigation into the proposed rail merger of FirstGroup PLC and Trenitalia SpA to comment from interested parties, in order to address competition concerns in relation to the award of the West Coast partnership rail franchise.
West Coast Rail, a joint venture between UK transport operator FirstGroup and Italian train operator Trenitalia, was awarded the West Coast rail franchise by the UK transport department in August. The contract, which is expected to run until March 2031, is for running passenger trains between London and Glasgow from December 8.
Bus and rail service operator FirstGroup holds a 70% stake in the venture, with the remainder owned by Italian-government owned Trenitalia.
The Competition & Markets Authority said there are reasonable grounds to believe that the undertakings offered, or a modified version of it, might be accepted to remedy the substantial lessening of competition identified by the regulator.
The regulator has until January 21 to decide whether to accept the undertakings, with the possibility to extend the time frame to March 17, if it considers there are special reasons for doing so.
Earlier in November, the CMA said the award of West Coast rail franchise to West Coast Rail could lead to higher fares and less availability of cheaper tickets because train passengers would have no alternatives, or limited options, to choose from.
The regulator found competition concerns relating to 21 routes in its phase one probe into the train contract award, 17 between Preston and Scotland and 4 between Oxenholme and Carlisle.
As a result, the CMA asked FirstGroup and Trenitalia to accept a number of conditions - including capping fares and agreeing not to reduce the number of advance fares on the 21 routes highlighted. FirstGroup and Trenitalia agreed to the undertakings.
The CMA now has until January to accept the proposals, and as such, is inviting comment on the potential tie up. The deadline for submissions is December 2.
By Paul McGowan; [email protected]
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