FirstGroup’s biggest shareholder escalates attack on board
Coast Capital threatens legal action over sale of transport operator’s US bus business
FirstGroup’s largest shareholder has threatened to take legal action if the UK-listed transport operator does not renegotiate, delay or call off the £3.3bn sale of its US bus business to Swedish private equity group EQT.
New York-based Coast Capital has escalated its attack on FirstGroup’s board for what it calls a “destructive disposal” after its lawyers sent a letter to the board demanding that it pushes back Thursday’s shareholder vote by 60 days to allow for an independent valuation.
The activist campaign waged by Coast, which holds almost 14 per cent in the company and has waged a multiyear campaign against the management team, threatens to jeopardise the sale of FirstGroup’s most profitable division to EQT.
The pressure on the board has been dialled up following an expansion in the shareholder revolt. FirstGroup denied Coast’s claim that an emergency board meeting would be held on Monday. Schroders, the second-largest shareholder, and a host of smaller investors have joined the fund in opposing the deal. Proxy adviser Glass Lewis has recommended against the sale because of “poor transaction timing and inadequate valuation”.
Columbia Threadneedle Investments, the third-largest shareholder with a stake of about 10 per cent, and three proxy advisory agencies have voiced support for the sale. More than 50 per cent of votes are needed to pass the deal.
The FTSE 250 group announced the sale of First Student and First Transit last month in a move that would help to shore up its balance sheet and refocus its operations on its UK bus and rail business that includes Great Western Railway.
But its share price dropped about 16 per cent in the week following the announcement of the sale, before recovering some of its losses after the largest shareholder went public about its opposition to the deal.
James Rasteh, founding partner at Coast, accused the FirstGroup board of acting in EQT’s interests and breaching its fiduciary responsibilities by failing to consider attractive alternatives, which it claims to have evidence of existing.
“It’s a terrible deal,” he said. “They were working to sell the most important public transport company in North America during a pandemic when there was no vaccine and no visibility on school reopenings.”
David Martin, chair of FirstGroup, said that the process was “entirely in line with market practice for a UK listed company and the board, which has been advised by three leading multinational investment banks, fully complies with its fiduciary responsibilities at all times”.
In the letter sent by law firm Quinn Emanuel to the board over the weekend, it said that if a motion to adjourn the extraordinary meeting this week is unsuccessful and “the transaction is approved, our client [Coast Capital] reserves its right to commence proceedings to recover any losses arising out of the sale of First Student and First Transit at an undervalue”.
Coast is set to issue a statement on Monday with a series of rebuttals to the valuation and provide peer comparisons in response to counterclaims made by First Group on Friday.