When UK transport operator FirstGroup plc (LON:FGP) (OTCMKTS:FGROY) rejected Thomas Sandell’s demands to sell its stake in Greyhound and other US assets, he made his proposals public. But what seemed like a natural next step to him fit perfectly into stories about US hedge funds starting activist campaigns in Europe.


Sandell Asset Management has had 10 activist campaigns since 2010

“We were a little surprised by the volume of publicity,” said Sandell in an interview with Activist Insight. He explains that while he doesn’t see himself or his fund, Sandell Asset Management, as dedicated activists he is willing to take an activist stance when it fits into his overall strategy. Activist Investing identified 10 public activist campaigns initiated by Sandell Asset Management since 2010, and it points out that he worked with the Bear Stearns merger arbitrage team that advised Carl Icahn during his controversial takeover of TWA. Even if activism isn’t central to his strategy, it’s clearly a tool that he has plenty of experience using.

Sandell hasn’t decided on FirstGroup proxy contest

In the case of FirstGroup plc (LON:FGP) (OTCMKTS:FGROY), it’s not surprising that someone started an activist campaign after management decided to hold a deeply discounted £615 million rights issue that destroyed shareholder value when many felt the company had other options, including the asset sales that Sandell is now advocating.

According to Sandell, FirstGroup plc (LON:FGP) (OTCMKTS:FGROY) rivals Student Transport America and National Express have costs of capital 54% and 15% lower than FirstGroup does, and that the fundamental problem has been management’s inability to raise margins to where they should be. The idea is that selling some of those strong assets will put FirstGroup in a better position financially and reduce the complexity of the operations so that management can improve performance. Since it was the rights issue that made shareholders so angry in the first place, some of that cash could find its way into buybacks along the way.

So far, it seems that FirstGroup plc (LON:FGP) (OTCMKTS:FGROY) management is still ignoring Sandell’s demands, but he wouldn’t say whether he is willing to take the next step and start a proxy contest. He might not have expected so much coverage for this campaign, but if he really hasn’t decided on his next step he may have been hoping that the attention would have been enough to push things his way.