Shares in embattled FTSE 250 transport company FirstGroup (FGP) jumped 10% to 94p as it finally managed to sell its US bus operations in a deal worth around $4 billion (£3.3 billion).
The firm has sold the divisions - comprising American yellow school bus business First Student and First Transit - to Swedish private equity group EQT Infrastructure in a move that will help it pay down debt.
FirstGroup will initially net just under £2.2 billion from the transaction, which is on a headline multiple of 8.9 times combined 2020 earnings.
Around £1.3 billion will be used to reduce indebtedness, including £300 million in Covid support repayments to the UK Government, as well as ‘de-risk’ other liabilities including North American legacy pensions and self-insurance.
Shareholders will also be due a 30p per share payout during the current calendar year, the group said, putting aside £365 million of the cash for the ‘return of value to shareholders’.
WIN FOR ACTIVIST INVESTOR
The deal could well be seen as another win for the activist investor community, with FirstGroup’s biggest shareholder Coast Capital having put pressure on the firm to do something about its US bus business, initially suggesting a demerger.
AJ Bell investment director Russ Mould said the deal could go down well given the price achieved but added ‘there are still some bits to tidy up’ with the remaining operations, such as the likely sale of its Greyhound business, which should then leave FirstGroup focused on the UK bus and rail market.
Mould said, ‘FirstGroup will certainly be in a better financial shape thanks to the US disposals. That will be quite a relief for the company after a long period of management first being distracted by shareholder pressure and then having to deal with the brutal impact of Covid-19 on transport demand.’
He added the rise of working from home and questions over the level of commuter demand meant it could be another year before there is more clarity on the new operating models for transport companies, but thinks that FirstGroup is taking a long-term view that ‘demand for public transport will remain robust.’
