Investor pressure forces First Group down road to break-up

Train and bus operator First Group today bowed to pressure from an activist investor and launched a radical break-up of the business.

Chief executive Matthew Gregory, who has been in post since November, said the firm will sell its struggling Greyhound coach business in America, followed by “a sale — in whole or in part — or a demerger” of its UK bus division.

It wants to focus more on its North American business, where it runs thousands of yellow school buses.

The Aberdeen-based company will continue to run its existing rail franchises in Britain, including Great Western Railways and the troubled South Western Railway. But, as other companies have quit rail over onerous terms from the Department of Transport, it warned it has “concerns with the current balance of risk and reward”. Today it took a £102 million hit to cover future losses linked to South Western.

The news of the break-up comes a fortnight after Coast Capital, the second-largest shareholder with a 10% stake, demanded the sacking of First Group’s board, arguing they don’t have enough transport experience to revive its fortunes.

James Rasteh, the founder of Coast, told the Standard: “They’ve finally decided to listen to us. We’ve asked them in no uncertain terms to do that [restructure].”

Gregory insisted the new direction of travel had nothing to do with Coast’s demands. He said: “We consult with shareholders regularly. It hasn’t been driven by Coast Capital’s opinion.”

Rasteh has also called for an extraordinary general meeting hoping to replace six of its 11 directors. He added: “This company is in great trouble if that doesn’t happen. Why would I trust these people to dispose of any assets?” The City welcomed the news, with the shares up 7.3%, or 8.2p, to 118p.

Alongside today’s update, First Group said it narrowed its losses to £97.9 million for the year to March 31 from £327 million the year before.

Turnover of £7.1 billion was just ahead of analysts’ expectations.

Daria Fomina, an analyst at Goldman Sachs, said: “We see limited synergies within First Group’s current structure and expect investors to view the strategy update positively, as a means of unlocking what we see as material residual value within the group.”