First Group to Sell Greyhound Bus Unit

(Bloomberg) --

FirstGroup Plc shares jumped the most in a decade after Chief Executive Officer Matthew Gregory bowed to shareholder pressure and announced a break up the U.K. bus and train operator.

The stock gained as much as 13% after Gregory, who has led the Aberdeen, Scotland-based company since November, reversed a vow to keep it together. Selling the U.S. Greyhound bus service and its U.K. counterpart First Bus, and pulling back from its commitment to rail will secure the best value for shareholders, he told reporters on Thursday.

FirstGroup, which owns a disparate group of bus and rail assets, has faced heavy criticism from its biggest shareholder, Coast Capital LLC. The company will now focus on two North American businesses -- First Transit, which manages public bus systems, and First Student, which operates yellow school buses -- where there is “significant potential to generate long term, sustainable value and growth,” Gregory said.

“We have five businesses with limited hard synergies,” Gregory said on a conference call. “The time is right to focus on the U.S.”

Coast Capital, which holds almost 9.8% of FirstGroup, was unimpressed. Although the U.S. investment company had been calling for a break up, “the reshuffling of assets does not address the fundamental issue,” Chief Investment Officer James Rasteh said in emailed comments.

“The plan is to focus on North American operations – but there are no North American transport experts on the board and no surface transport experts at all,” he said. Gregory “is not the right person to lead a North American surface transport business in need of turnaround.”

Previous CEO Tim O’Toole left last May after delivering an annual loss and overseeing an almost 75% decline in the stock price.

The shares pared gains and traded 4.4% higher at 115.30 pence as of 9:57 a.m. in London, extending an increase this year to 38%.

First Bus will be separated, the company said, after a series of investments and cost efficiencies have improved profit margins. Its rail network, which includes South Western Railway and Great Western Railway, will be operated “in accordance with their terms.” The company is awaiting the outcome of a U.K. review of rail-industry structure before deciding whether to make any future commitments to the sector.

“What we said in November is that we were looking at ways to unlock value,” Gregory said. “While we engage with all shareholders, this hasn’t been driven by Coast Capital’s view -- it’s the result of a lot of work internally.”

FirstGroup last year rejected takeover bids from Apollo Global Management LLC, saying they undervalued the business. The company has also attracted interest from buyout firms including CVC Capital Partners, people familiar with the matter said last year.

The decision comes as FirstGroup reported an annual adjusted pretax profit of 226.3 million pounds ($286 million). The company said it won’t pay a dividend for the year that ended in March.

To contact the reporters on this story: John Bowker in Johannesburg at jbowker2@bloomberg.net;Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Andrew Noël

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