The bus and train group announced last month it had agreed on terms for the sale of its US Transit and Student operations for £3.3bn.
Now US fund group and 13.6% shareholder Coast Capital has said it will vote against the deal, describing it as a “suboptimal and incomplete process at an inopportune time and “made worse by a distribution of proceeds which sees long-suffering shareholders receiving just 12%”.
Coast added that shortly before the announcement of the sale it presented its own proposals, the value of which it claims that FirstGroup’s own adviser admitted: “Could be … 25% greater than the proposed EQT deal”.
The US group added that the FirstGroup board has categorically refused to entertain or study more attractive alternatives.
40 potential buyers engaged
In response, FirstGroup said that the sale was well-publicised for more than a year and through the sale process the businesses were widely marketed with engagement with more than 40 potential buyers.
“In the context of a competitive process to extract the most attractive proposal, an earnout structure was agreed for First Transit which would benefit continuing shareholders in the Group.”
In addition, FGP added: “The Group has a number of longstanding liabilities.
“As previously set out, in determining the use of proceeds the Board has sought to balance returning value to shareholders while also making a necessary and substantial contribution to the UK pension deficit, reducing its debt (including repayment of Covid Corporate Financing Facility to the UK government) and addressing other longstanding liabilities.”
Scope for bigger handout
Liberum added it agrees with Coast that there is scope for more of the cash to be returned to shareholders.
Any cash generation since the interim results could reasonably be added too (Coast Capital estimates this at £50mln), said the broker.
Liberum cautioned, however, that this would require confidence that the pandemic has run its course, which is by no means certain.
“Finally, we note that FirstGroup has not settled on a method to return cash to shareholders, although we see a tender offer of some sort as offering advantages over a special dividend (tax-inefficient) or share buyback (not immediate, constrained by trading liquidity).”
FirstGroup shares rose 0.75% to 81.1p.
— adds FirstGroup response–