Shares in Aberdeen-based transport company FirstGroup jumped nearly 3.5% after it announced the completed sale of North American businesses First Student and First Transit.
Investors cheered bigger-than-expected initial net proceeds from the £3.3 billion deal, with the assets bringing in £2.27bn for FirstGroup after the deduction of insurance liabilities, valued at around £390 million, and about £505m in “debt and debt-like items, net working capital and other adjustments”.
Bigger payout for shareholders
FirstGroup, which now has just one business left across the Atlantic, has also upped the value of a cash return to investors.
They will now receive a total of £500m – about 41p per share – during the autumn, compared with the £365m that was previously indicated.
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.
The two businesses have been acquired by Swedish private equity group EQT Infrastructure, leaving FirstGroup with only its iconic Greyhound coach business waiting to be sold across the Atlantic as the company prepares to focus in future on its UK bus, tram and train operations.
FirstGroup chief executive Matthew Gregory said: “We have delivered this transformational sale which resolves the group’s long-standing legacy liabilities, puts the group in a strong position to benefit from its many opportunities and releases £500m of value to return to shareholders.
“As part of the FirstGroup family for many years, they (First Student and First Transit) have gone from strength to strength, and I am confident they will continue to flourish as part of EQT Infrastructure.”
Chairman David Martin added: “This delivers on our strategic objective and creates a focused and stronger business, with a bright future.
“The vital role of public transport in the UK has never been clearer, and with the most supportive policy backdrop in decades coupled with our strong credentials, FirstGroup is in prime position to deliver on its goals, with a well-capitalised balance sheet and an operating model that will support attractive dividends.”
Mixed reaction
Shareholders had mixed feelings about the sale, which was rejected by 38.7% of investor votes at a general meeting in May – just over a month after FirstGroup unveiled its disposal plan for First Student and First Transit.
One investor said it was good the deal was done quickly and extra money returned to shareholders, but added: “I still think the amount returned is too low.”
Another investor on the same shareholder forum said: Great news today – group looking leaner and in better shape than previously thought going forward. As UK lockdown winds down but foreign travel is still on hold, I see a strong H2 for bus and train travel.”
‘Bigger picture’
However, there were also words of caution that a recent bounce in FirstGroup’s share price still left the stock below its level of a few months ago amid uncertainty in the UK public transport sector. “Look at the bigger picture”, that particular investor said.
The shares closed up more than 3% at 82p at today’s market close, having reached 83.54p earlier in the day.
The company is using its cash boost to reduce its debt pile, with the total down to about £100m following the sale, 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.
Meanwhile, a First Transit “earnout” is expected to deliver a further sum of up to £175m within the next three years.
The sale announcement came in advance of FirstGroup’s results for the year to March 2021, due to be unveiled on Tuesday (July 27). There was no update on the disposal plan for Greyhound, whose famous coaches connect cities throughout the US and Canada.
FirstGroup share boom after £3.3bn US sell-off
