Activist investors have again proven their power as transport company FirstGroup (FGP) bows to pressure from one of its major shareholders to reshape the business.
The firm has signaled that it’s considering breaking itself up and selling its struggling Greyhound coach service in the US, and is also seeking to spin off its UK bus arm First Bus.
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In addition, the firm is reviewing its UK rail franchise with concerns over the ‘current balance of risk and reward being offered’, meaning it will continue with its current contracts but seriously weigh up whether or not any futures ones are worth it.
AMERICA FIRST
FirstGroup plans to focus on its largest division, American school bus service First Student, which has a fleet of 42,000 buses and has performed particularly well in recent years, as well as its other American bus service First Transit.
Explaining the rationale for the shake up in a strategy update, chief executive officer (CEO) Matthew Gregory says that while the group overall is ‘making progress’, it’s clear that ‘different parts of our portfolio face increasingly divergent opportunities and challenges as they work to deliver for our customers’.
He continues, ‘Each requires an increasingly tailored approach and focus to move forward and innovate to generate value for both customers and shareholders alike.’
The news is seemingly music to the ears of the market, as the shares jumped over 9% this morning before levelling off at around 4% higher to 115p in mid-morning trading.
WILL IT APPEASE ACTIVIST?
But despite the ‘portfolio rationalisation’ as FirstGroup calls it, it remains to be seen whether the narrowing in strategy will appease 10% shareholder Coast Capital, an activist investor which has long since criticised the company’s direction and has threatened to stage a boardroom coup.
It satisfies most of the demands made by Coast Capital, which has been unhappy with the company’s UK rail franchise and lack of focus on the strength of its First Student division, but stops short of the ousting of CEO Gregory and chairman Wolfhart Hauser that the activist was seeking.
Canaccord Genuity analyst Gert Zonneveld welcomes the company’s plans, which he says are better late than never, and believes that while a recovery will take some time, ‘there is significant potential to generate shareholder value.’
Meanwhile other relatively good news for the market from FirstGroup comes in the shape of its full-year results to 31 March, which reveal a dramatic reduction in pre-tax losses to £97.9m compared to £326.9m the previous year.
