FirstGroup has rejected a proposal from a hedge fund shareholder to split the firm and sell off assets.
New York-based Sandell Asset Management – the owner of 3.1% of the company – wants First to offload its intercity bus service Greyhound and spin off the rest of its North American arm, which includes school bus services for 6million pupils.
The fund, led by Swedish billionaire Tom Sandell, believes the changes would strengthen its balance sheet and better prepare the company for the upcoming round of UK rail franchise bids, as well as enabling it to invest in the turnaround of its UK bus arm.
But the Aberdeen-based bus and rail operator said last night that the proposal was “not compelling and contains a number of structural flaws and inaccuracies”.
FirstGroup saw its shares tumble this year after it raised £615million from investors and cancelled its dividend.
Problems also meant the UK Government was forced to reverse its decision to award FirstGroup the West Coast mainline rail franchise.
FirstGroup acquired Greyhound and the school buses business after its acquisition of Laidlaw in 2007. However, the deal saddled the firm with debt.
Shares rose 3% yesterday after the activist said he would lobby other shareholders to support proposals that it believed would set the company “on the right path to long-term success”.
Mr Sandell said: “Our established track record in company analysis and our sector expertise tells us that FirstGroup can turn around its historic poor performance by focusing on its UK rail and bus businesses.”
FirstGroup has engaged with Mr Sandell several times but said it was committed to existing plans announced in May under which it will pour £1.6billion into a four-year investment programme and tackle debts of nearly £2billion.
The strategy will look to improve the performance of all divisions, including its GreatWestern rail arm.
The company, which is due to provide investors with more details of its plans on January 23, said: “We remain focused on the vigorous execution of our strategy.”
Last week, FirstGroup announced the appointment of John McFarlane as chairman following a six-month search for someone to replace Martin Gilbert.
It reported half-year pre-tax losses of £8million last month, although this was a marked improvement on the £20.6million loss seen a year earlier.
Analysts at Liberum Capital say there is value in FirstGroup but “patience will be required”.
“We struggle to see how a strategy of large-scale disposals creates value,” a spokesman said. “Selling underperforming assets when they are cyclically depressed is unlikely to realise more value than restructuring them, and seeking an exit at a better point in the cycle, if appropriate.”