FirstGroup takeover bid from US private equity company I Squared
Robert Lea
Industrial Editor
Thursday May 26 2022, 11.50am, The Times
FirstGroup, the largest train operator in Britain which is under threat of a nationwide rail workers strike, has received a takeover approach valuing the company at up to 163.6p a share, or £1.22 billion.
The offer from the US private equity company I Squared is being considered by FirstGroup’s board after it had previously rebuffed a “series of unsolicited, conditional proposals”.
The offer is way ahead of where FirstGroup’s shares have traded since an emergency rights issue in 2013, which involved £600 million of fundraising to save the company from collapse amid heavy debts. Confidence in the stock has not recovered since.
Shares in First Group rose in morning trading by more than 8 per cent, or 9¾p, to reach 129¼p, suggesting at least some pessimism that a deal can be done at the upper end of I Squared’s conditional offer of up to 163.6p.
The private equity firm is offering 118p a share for First Group, plus up to another 45.6p a share depending on extra money the business could receive from the sale of its US businesses.
A year ago First Group cleared most of its debts with the sale of its city buses and school yellow bus operations in the US for £3.3 billion, most of which went to clearing the group’s liabilities, including to pensioners and governments. Later that year it
sold its US intercity coach business Greyhound for £125 million.
It is understood that the 45.6p component of I Squared’s offer relates to future earnings from the US First Transit bus business, an “earnout” that could come First Group’s way at some stage, and the clearing-up of assets and liabilities at Greyhound.
The approach from a US private equity firm will attract the interest of civil servants and ministers.
FirstGroup employs 30,000 people in the UK and runs or co-runs the Avanti west coast main line services between London, Birmingham, Manchester and Glasgow and has been handed the keys to run HS2 high-speed trains when the new line eventually goes into service late this decade. It also operates Great Western Railway connecting London, Bristol and Cardiff, South West Railway, London’s busiest commuter route into and out of Waterloo, the Trans-Pennine Express between Manchester and Leeds, and Lumo, the new low-fare train business between London, Newcastle and Edinburgh.
The company operates as a government train contractor under strict, low-margin, management contracts, determined by the transport department after reforms to the running of the railways during the pandemic under Grant Shapps, the transport secretary.
The group also has significant bus operations around the country.
I Squared has hitherto had a low profile in the UK, though its advisers include Jonson Cox, the recently retired chairman of the water regulator Ofwat. Two decades ago Cox was a senior director of Railtrack, Britain’s privatised railway infrastructure company, before losing his job in a management clear-out prior to the business falling insolvent and being reincarnated as Network Rail.
The company’s approach to FirstGroup is only the latest agitation from would-be American buyers in recent years. The actions of Coast Capital led to FirstGroup’s breakup last year, and the defenestration of various FirstGroup directors along the way. Earlier in the decade the operator had come under attack from Sandell Asset Management.
There has been speculation in the City that a takeover bid for First Group could come from National Express after its recently rebuffed takeover of Stagecoach.
