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FirstGroup abandons plan to sell its UK bus businesses


Andrew Forster
20 March 2020

FirstGroup is to retain its UK bus businesses after announcing a complete U-turn in its strategy. It will now sell its North American interests instead.

FirstGroup announced a strategy to sell all of its UK bus businesses last summer and concentrate on its North American markets of First Student snd First Transit, while also retaining its UK rail franchises (LTT 07 Jun 19). In December, however, the company indicated it was having a rethink, saying it was also drawing up options for selling the North American businesses. 

Updating the market last week, First said it had now commenced the sale process of First Student and First Transit and there had been “significant interest expressed by a range of potential buyers”. The sales should complete in the second half of 2020, it said.

The decision means First will become solely focused on its bus and rail businesses in the UK and Ireland. 

The change of thinking follows the appointment of David Martin as the company’s new chairman last September. Martin is a former chief executive of Arriva. 

Martin said this month that the board believed selling the North American businesses was “the best way to unlock material value for all FirstGroup shareholders”.

“I’ve a very clear steer as to the impatience of our shareholders,” he said. “And when we reflected on it, the jewel in our crown, let’s be honest, is our North American business. 

“Clearly there are no synergies between the two [the UK and North American businesses]. That’s been made quite apparent. And the more we looked at it and with appointed independent advisers, the more they looked at it, it became apparent that the way of realising maximum shareholder value was to unlock that value in our North American businesses.”

FirstGroup chief executive Matthew Gregory said: “In First Student and First Transit we have well-invested long-term contract businesses with excellent customer relationships, strong management teams and opportunities for growth. We look forward to seeing these characteristics being reflected in the outcome of the formal sale process.”

The two North American businesses had combined revenues of $3.8bn in 2018/19 and earnings before interest, tax, depreciation and amortisation (EBITDA) of $558m.

Gregory said First was in “very advanced negotiations” for the sale of First’s third North American business, the Greyhound coach network. 

Martin said he was excited by the prospects for public transport in the UK, pointing to the new Government’s proposals for a national bus strategy and pledge of a £5bn five-year funding package for buses (and cycling) in England (LTT 21 Feb). 

Disussing the bus business specifically, he said: “At the moment, in my experience, this is one of the most exciting times, with potentially real deliverables there and money standing behind it. For the first time in my 30 years, I actually believe it’s going to happen, and society needs it, environmentally we need it and we’ve got a business here that could actually deliver.” 

First’s investigations into selling its UK bus interests generated interest not only from other bus operators but from councils too. Glasgow, Aberdeen and the West Yorkshire Combined Authority had all held talks with the company to explore the possibility of purchasing their respective local subsidiaries. 

First said last week that its priority for the UK bus businesses was to improve financial perfomance. 

“We continue to actively address our cost base through our comprehensive efficiency programme, the benefits of which we expect will be more evident in our next financial year.”

It will continue to prioritise investment where stakeholders “support our ambitions to deliver thriving and sustainable bus services”.

First has four rail franchises: Great Western; West Coast (with Trenitalia); TransPennine Express; and South Western (with MTR). 

The latter two are in financial difficulties, with South Western still suffering from a long-running industrial dispute.

“We believe the best way forward for SWR is a new contract ... that has an appropriate balance of risk and reward for our shareholders, and we are currently negotiating on this basis with the DfT,” said FirstGroup last week. Martin described the solution as a management contract. 

The current Great Western Railway management contract is due to expire at the end of this month but First and the DfT are understood to be close to agreeing another extension. 

The West Coast Partnership includes planning for HS2. 

With a new agreement for SWR, the GWR extended, and HS2 proceeding, Martin said: “We could find ourselves with a rail business that’s actually pretty robust and will actually generate cash.” 

First also has open access rail operations with Hull Trains and is preparing to launch open access between Edinburgh and London. 

Asked if First might one day explore opportunities abroad, Gregory said: “The UK businesses of today will be the core of our business, but that doesn’t rule out growth opportunities as we move forward, whether that is geographically, whether that's different modes of transport.”

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