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FirstGroup surges as it offloads US school buses in £3.3bn deal

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Suban Abdulla
·2 min read
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Selling First Transit and First Student will allow the company to shore up its balance sheet after it posted a £100m pre-tax loss in the half year to September 2020. Photo: David L Ryan/The Boston Globe via Getty Images
Selling First Transit and First Student will allow the company to shore up its balance sheet after it posted a £100m pre-tax loss in the half year to September 2020. Photo: David L Ryan/The Boston Globe via Getty Images

FirstGroup (FGP.L) shares rose over 9% on Friday after it confirmed it is selling its US school bus business to infrastructure investor EQT in a £3.3bn ($4.6bn) deal. 

The FTSE 250 (^FTMC) bus operator had been under pressure from activist investors to offload its American business. 

The company had been in an ongoing battle with its biggest shareholder, US investment company Coast Capital Management for over a year, which led to the ousting of chairman Wolfhart Hauser in 2019. 

This resulted in the US firm persuading the FirstGroup board to prioritise the sale of its prized US operations.

FirstGroup chairman David Martin, formerly chief of rival transport group Arriva was drafted in to oversee the business' break-up. 

Martin said the agreement "enables FirstGroup to address its long-standing liabilities, make a substantial contribution to its UK Bus and Group pension schemes and return value to shareholders, while ensuring the ongoing business has the appropriate financial strength and flexibility to deliver on its goals."

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The new owner, which is affiliated with Sweden-based private equity company EQT (EQT.ST), will acquire First Transit and First Student in the transaction.

The latter is the biggest provider of student buses in North America. First Transport carries around 350 million passengers a year across 300 locations.

Selling the pair will allow the company to shore up its balance sheet after it posted a £100m pre-tax loss in the half year to September 2020.

It said that its debt will reduce from £1.4bn at the end of March 2021 to around £100m, following the disposal. 

Cash proceeds from the sale will be £2.19bn, parts of which will be used to pay off debt, insurance liabilities, and COVID loans to the UK government. A chunk of the capital will also likely be handed to FirstGroup's pension schemes.

Martin said that FirstGroup will concentrate solely on its UK rail and bus businesses, moving forward. 

First Bus owns a 20% share of the bus market outside of London while First Rail has all or part of GWR, South Western Railway and TransPennine Express.

Bus services in Britain are currently being subsidised by the government after a reduction in passenger numbers as a result of COVID-19 pandemic.

FirstGroup said it expects bus passenger volumes to recover to between 80 and 90% of pre-COVID levels during the first year after social distancing restrictions on public transport end.

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