First Group sells bulk of US transport business in $4bn deal
First Group has sold the bulk of its North American transport business in a deal worth $4bn (£2.9bn), as the transport group looks to focus on its UK bus and rail operations.
The Aberdeen-based First Group has sold First Student, the biggest school-run operator in the US, with about 43,000 yellow buses, and First Transit, which provides outsourced public transport, to EQT Infrastructure.
Shares rose 10% after the deal was announced on Friday, making First Group the top riser on the FTSE 250.
First Group, the UK’s largest bus company and an operator of rail franchises including Avanti West Coast and Great Western Railway, is still seeking to sell Greyhound, its third North American business.
The company said that net proceeds from the sale would be £2.19bn, after paying debt and various liabilities relating to the two North American businesses.
First Group launched the strategic review of its US operation in 2019, in an apparent reversal of strategy only months after the company confirmed it would focus on North America. The activist investor Coast Capital, which holds more than 10% of First Group’s shares, has been calling for the company to demerge its North American assets for several years.
In December, the group, which has been trying to sell its Greyhound US intercity bus service since May 2019, sold off three major bus facilities in North America for £102m.
“We are pleased to have agreed the sale of First Student and First Transit in a transaction which recognises their full strategic value,” said Matthew Gregory, the chief executive at First Group. “Both are resilient, high-quality businesses with strong prospects for returning to normal levels of service following the pandemic. Going forward, First Group will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK.”
The company, which last July warned that the impact of the coronavirus pandemic on the transport industry could force it to stop trading, said that £1.34bn would be used to reduce debts. This includes repaying a £300m loan from the government’s Covid corporate financing scheme.
A further £336m will be put into the UK bus and group pension schemes, while shareholders are in line for a £365m windfall. First Group said there could be more payouts, including a £170m earn-out relating to First Transit.
“This transaction, which follows a strategic review by the board of all options to unlock value, enables First Group to address its longstanding 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,” said David Martin, the chairman of First Group.
The company, which has liquidity in excess of £900m as it rides out the pandemic, also issued a profits upgrade, saying that it now expects adjusted operating profit for its financial year to be ahead of management expectations.
“As economies begin to emerge from the pandemic restrictions and society begins the process of building back better, the vital role of public transport is clear,” Gregory said. “The services we provide are critical to economic activity and social objectives including ‘levelling up’, and play an important role in combating climate change and helping local communities flourish.”