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FirstGroup activist renews attack ahead of EGM

The transport company is facing an extraordinary meeting next week to vote on the ousting of six board members
June 19, 2019

Activist investor Coast Capital is not backing down ahead of the FirstGroup (FGP) extraordinary meeting next week. The latest in the war of words is a rebuttal from the US-based hedge fund regarding “many misleading claims and assertions” made by the board of the transport operator. It argues that the changes to the board it wishes to make are indeed in the best interests of shareholders. 

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Coast Capital is aiming to have six of the current FirstGroup board members replaced with its suggested candidateseek, claiming that the existing members have “presided over a period of breathtaking value destruction and underperformance in every division of the company”, according to chief investment officer James Rasteh. The activist points to a 25 per cent decline in the share price over the past four years of the board's tenure and £750m in total losses, including impairments, restructuring charges, and insurance reserve charges, which equate to more than the amount raised in the 2013 rights issue.

The activist investor believes that the transport group should stop bidding for more rail franchises, and let the existing three run their course. Mr Rasteh argues FirstGroup could “monetise US assets” by fixing them up and then selling, saying a private equity buyer has already shown interest, and use the proceeds for pension contributions and to pay down debt. Coast Capital believes that the UK bus business needs work, such as moving buses on lossmaking routes to those that are profitable, but said now would be a poor time to sell the business as its more valuable peer, Arriva, is already on the market.

A spokesperson from FirstGroup called Coast Capital’s plans “inconsistent and irresponsible”, and said that the rebuttal did not change the group’s position. The company believes that the activist is aiming to seize control of a UK-listed company without having to pay a premium, and that its plans would leave the company with higher debt and were “not in the best interests of all shareholders and our wider stakeholders”. The spokesperson added that the Coast Capital documents “continue to demonstrate numerous factual inaccuracies and misunderstandings” about the business.

Coast Capital has been adamant that current members of the FirstGroup board do not have the relevant background to run a UK surface transport company, and have put forward nominees that it believes are more knowledgeable about transport, including a former UK Minister of Transport, a former chief executive of fellow transport group Arriva, and a former vice chairman of United Airlines.

FirstGroup maintained that the company’s current board is “diverse and independent” with “the skills and backgrounds to address the future needs of transport”. Liberum transport analyst Gerald Khoo called the candidates proposed for the EGM “strong”, but added that board upheaval could risk delaying action to turn around the business in the short term.