Shares in FirstGroup rocketed 16.5% in early trading on Friday after the Aberdeen-based transport giant announced a £3.3 billion deal to sell two of its three businesses in North America.
The stock fell back, ending the session up 4.47% at 88.9p, but it was still a good day in the City for the FTSE 250-listed company.
It has agreed to dispose of its First Student and First Transit businesses to Swedish private equity group EQT Infrastructure, leaving only its iconic Greyhound coach business waiting to be sold across the Atlantic.
First Student is the largest provider of home-to-school student transport in the US and Canada, with a fleet of 43,000 yellow school buses. First Transit is one of the largest providers of outsourced transit management and contracting services in North America.
“Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK.”
Matthew Gregory, FirstGroup chief executive
FirstGroup said it would bank £2.19bn of initial net proceeds from the deal after deducting self-insurance liabilities, valued at around £390 million, and about £505m in “debt and debt-like items, net working capital and other adjustments”.
The company will use its cash boost to settle debts and make sure it has “sufficient means” for the future development of its retained businesses. It will also make a £336m contribution to its UK Bus and group pension schemes.
In addition, it plans to deliver a £365m payout to shareholders during 2021. Sale completion is expected in the second half of this year. There was no update on Greyhound, which connects cities throughout the US and Canada, and was acquired by FirstGroup in a £1.9bn deal in 2007.
But in a brief note on recent trading, FirstGroup said it expected adjusted operating profits for the year to March 31 2021 to be ahead of management’s previous expectations.
Chief executive Matthew Gregory said: “As economies begin to emerge from the pandemic restrictions and society begins the process of ‘building back better’, the vital role of public transport is clear.
“The services we provide are critical to economic activity and social objectives including ‘levelling up’, and play an important role in combating climate change and helping local communities flourish.
“Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK, continue investing in its zero-emissions fleet strategy and play a key role in meeting society’s broader ESG (environmental, social and corporate governance) goals.”
Russ Mould, investment director at financial services firm AJ Bell, said the deal was “another win for the activist investor community” and would leave FirstGroup in better financial shape.
Mr Mould added: “Its biggest shareholder, Coast Capital, had been putting pressure on FirstGroup to do something about this part of the business, initially suggesting a demerger but the sale should go down well, given the good price achieved.
“There are still some bits to tidy up with the remaining operations, such as the likely sale of its Greyhound business. That should then leave it focused on the UK bus and rail market.”
Mr Mould warned the rise in working from home had put a question mark over the level of commuter demand going forward, adding: “It could be another year before there is more clarity on the new operating models for companies and how much flexibility is given to staff regarding their working location.
“However, FirstGroup is no doubt taking a long-term view that demand for public transport will remain robust.”
Click here to see FirstGroup’s corporate announcement of the deal for First Student and First Transit.