Sandell Ratchets Up Demand For FirstGroup To Spin Off

Updated on

Sandell Asset Management stepped up its demand for FirstGroup plc (LON:FGP), one of the leading transport operators in the United Kingdom and United States, to break up its business and sell its American long distance coach operator, Greyhound.

The hedge fund urged the transport operator to reconsider its premature rejection of its breakup proposal last month. FirstGroup plc (LON:FGP) rejected the proposal because it believed that it was not compelling with structural flaws and inaccuracies.

Last year, the board of directors FirstGroup plc (LON:FGP) evaluated all alternative strategies including the possibility of asset sales prior to announcing its deeply discounted £615m rights issue.

Sandell proposal includes sale of Greyhound

Sandell Asset Management issued a new document on Wednesday discussing its proposals and its benefits for FirstGroup plc (LON:FGP). The hedge fund recommended that the transport operator sell its Greyhound unit and estimated that its value would be around $555 to $596 million, which represents 10x to 10.5x EBITA. Analysts calculated that the value of the American long distance coach operator is about £480-£600 million based on 8x to 10x operating profit of £60 million for the year March 2014.

Sandell Asset Management also urged the company to spin off its stake remaining businesses in the United States to shareholders. The hedge fund emphasized that FirstGroup plc (LON:FGP) could use the proceeds to repay its debt and expand its bus and rail operations in the United Kingdom.

According to the hedge funds, its proposals will be in line with the turnaround initiatives outlined by the management of FirstGroup plc (LON:FGP).

Tom Sandell, chief executive officer of the hedge fund said, “We believe shareholders strongly support our ideas, and have been encouraged by their reaction since our engagement with the company became public.” He added, “The board’s statement that it remains open to shareholder feedback is encouraging and will allow for constructive and open engagement about ways to improve the company’s performance and deliver value to shareholders.”

Sandell Asset Management owns 3.1% stake in FirstGroup plc (LON:FGP). Mr. Sandell travelled to United Kingdom this week to encourage its fellow shareholders to support his proposals for the company.


FirstGroup plc (LON:FGP) did not release any comment regarding the latest proposal of Sandell, but one person familiar with the situation opined that there is nothing new in the document.

“These are all proposals that FirstGroup plc (LON:FGP) looked at in some length prior to the rights issue. There are lots of issues around what they’re proposing which would be destructive to value. In essence Sandell is proposing a capital markets solution to what is an operational challenge for the group and there is very little in what Sandell is proposing to address or tackle that,” according to the person quoted by Financial Times.

The Telegraph also quoted a comment from one of the largest shareholders of the company who said that Sandell’s proposals were “fundamentally interesting,” but he warned that there is a “huge gulf between a plan sounding good on paper and actually executing it”.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!