- Shares jump 10% on bid interest

- Infrastructure assets in high demand

- Timing looks well-chosen

Shares in bus and rail operator FirstGroup (FGP) jumped 9% to 130p, continuing a week of gains after it confirmed it had received ‘a series of unsolicited’ bid approaches.

The firm, which is the largest rail operator and the second-largest bus operator in the UK, said it ‘strongly advised’ shareholders not to react to the news.


The approach, from infrastructure investor I Squared Capital, consists of a cash component of 118p per share and ‘a contingent right’ to up to a further 45.6p per share based on the outcome of the First Transit earnout and the net proceeds from the sale of the Greyhound bus division.

Privately-owned I Squared has investments in energy, utilities, telecom and transport assets across the globe.

Last month it raised $15.5 billion for a new fund, more than twice as much as it gathered for its previous fund and above its $12 billion target, demonstrating the appetite among investors for infrastructure assets.

The company said it had already targeted the deployment of more than a third of the fund in 10 investments across its sectors.

If I Squared paid the full amount of 163.6p per share for FirstGroup, which would represent a 37% premium to last night’s closing price, the firm’s equity value would still only be £1.23 billion making it easily digestible.


Whether or not I Squared succeeds in its approach, its timing couldn’t be better from the point of view of picking up cheap assets.

In its February trading update, FirstGroup said the business was performing in line with expectations as bus volumes bounced back to more than 70% of pre-pandemic levels and rail operations performed in line with, or slightly ahead of the targets set by the Department for Transport.

Management of the legacy assets of the Greyhound business, including things such as property, was also ahead of plan, while pension and insurance liabilities had been de-risked.

As a result, the firm said it was ahead of plan overall to realise $155 million in net value from Greyhound this year and beyond.

Meanwhile, following the sale of First Transit there is further value to be realised from the earnout clause which could be worth up to £180 million according to company estimates against an accounting fair value of £102 million.

Having exited North America and reduced its debt considerably, the firm was even able to return £500 million to shareholders by way of a tender offer at a premium last November.




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Issue Date: 26 May 2022