FirstGroup’s No.2 Shareholder Schroders Opposes U.S. Sale

Schroders Plc said it will vote against FirstGroup Plc’s $4.6 billion sale of two U.S. bus divisions to EQT Infrastructure, raising questions about the success of the deal with the London-listed transport firm’s two biggest investors now opposed to it.

Schroders is FirstGroup’s second-largest investor with a holding of close to 12%, according to data compiled by Bloomberg. Its decision lends support to Coast Capital Management LP, which owns almost 14% and has said the sale should be voted down unless terms are substantively improved.

“We appreciate this has been a very difficult period in which to carry out a sales process,” a Schroders spokesperson said in a statement Thursday in response to Bloomberg queries. “However, after careful consideration of the merits of the proposed sale of First Student and First Transit, we have the intention of voting against the deal as it stands, as we believe it undervalues these businesses.”

FirstGroup agreed in April to sell the biggest operator of America’s iconic yellow school buses, retreating from a global expansion. If the deal is approved, Stockholm-based investment firm EQT would acquire First Student, which serves 1,000 school districts, and First Transit, an operator of bus services across more than 300 locations.

Schroders, which normally engages with companies behind closed doors, is making a rare public stand against the deal in a move that could galvanize opposition from other investors. The fund manager said it continues to have “full confidence” in FirstGroup Chairman David Martin “to provide the necessary leadership and vision for the ongoing business.”

Full Value

FirstGroup said Thursday the sale achieves “full value” that looks beyond the effects of the pandemic. The agreement with EQT followed a “comprehensive and competitive process” involving discussions with more than 40 potential buyers, it said in a statement. Shareholders are due to vote on the deal May 27.

“We believe this board is in clear breach of fiduciary responsibilities in refusing to explore higher bids,” James Rasteh, partner and chief investment officer at Coast Capital, said in an email.

The transaction would mark a breakup of FirstGroup, whose international strategy prompted a pressure campaign that lasted more than two years and cost its chairman his job. It decided before the pandemic to sell the U.S. businesses, after activists including Coast Capital said the assets would be worth more sold off. The bulk of proceeds will be used to fund its U.K. operations and pay down debt.

“The raging war of words between FirstGroup and its largest shareholder shows no sign of abating,” Josh Rosen, a special situations analyst at United First Partners LLC, said by email Thursday. “Despite the insistence from proponents of the transaction as to the scarcity of alternative strategic options, we expect next Thursday’s vote to go the wire.”

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