First Group: General Discussion

[winston270twm]

CVC Capital Partners are interested in First Group, CVC are the Private Equity Group who joined forces with the Spanish Cosmen family & Stagecoach to bid & break up NX Group back in 2009:

https://www.bloomberg.com/news/arti...to-draw-private-equity-interest-including-cvc

FirstGroup Plc, the operator of Greyhound buses and British trains, is attracting interest from buyout firms including CVC Capital Partners as it conducts a review of the business, people familiar with the matter said.

The buyout firm has not made a formal bid and deliberations are in early stages, the people said, asking not to be identified as the details aren’t public. FirstGroup, which has a market value of 1.2 billion pounds ($1.5 billion), rejected proposals from Apollo Global Management LLC in May, saying they “fundamentally undervalued” the business. Potential bidders may make offers for part or all of the business, the people said.

A representative for FirstGroup declined to comment. A representative for CVC didn’t immediately respond to a request for comment. Canadian activist fund West Face Capital acquired a stake in FirstGroup last year and now holds a 2 percent position in the company, according to data compiled by Bloomberg.

FirstGroup Chief Executive Officer Tim O’Toole resigned in May after the Aberdeen, Scotland-based company reported an operating loss for the year ended March 31. Wolfart Hauser, who was appointed executive chairman until a new CEO is found, said at the time the company had started a review of the business model and its long-distance U.S. bus service Greyhound.

The company’s shares have fallen 13 percent this year as it struggles with intensifying competition for Greyhound from low-cost airlines in the U.S. and under-performing rail routes in the U.K.

 

[Robertj21a]

CVC Capital Partners are interested in First Group, CVC are the Private Equity Group who joined forces with the Spanish Cosmen family & Stagecoach to bid & break up NX Group back in 2009:

https://www.bloomberg.com/news/arti...to-draw-private-equity-interest-including-cvc

Let's hope that it progresses to a sale. Only then will we be able to have a better idea about what might happen to UK Bus.

 

[overthewater]

So who could the other compaines be within this bid?

 

[winston270twm]

Let's hope that it progresses to a sale. Only then will we be able to have a better idea about what might happen to UK Bus.

Either way, First Group isn't going to attract top prices, it's effectively a 'distressed sale', that's assuming a full sale is even agreed at an acceptable price. Private Equity will want it cheap.

CVC are investors in some UK businesses such as RAC & Moto Service Stations, but that said, UK Bus & Rail aren't very attractive businesses to be in at present:
http://www.cvc.com/private-equity/investments/portfolio-companies

NX Group could always do a pre-agreed deal with CVC to cherry pick the bits it's interested in, i.e. the same at Stagecoach was lined up to by NX UK Operations if CVC's bid went through in 2009?

 

[Robertj21a]

Yes, any successful 'fire sale' will have to be at rock bottom prices if it wants to succeed. No doubt FGP realised that even before they put it up for sale. They are still going to have massive debt - but what else could they do.

 

[TheGrandWazoo]

Yes, any successful 'fire sale' will have to be at rock bottom prices if it wants to succeed. No doubt FGP realised that even before they put it up for sale. They are still going to have massive debt - but what else could they do.

Before people get too excited by a fire sale, remember that the idea of divesting is to create shareholder value - not to incur massive losses on sale.

Greyhound may be more of an issue given how it’s losing money/market share but not so much UK Bus

 

[overthewater]

I thourght this kind of fire sale will be like disney 1984 ie five different buyers. Each getting thier own part?

 

[winston270twm]

Before people get too excited by a fire sale, remember that the idea of divesting is to create shareholder value - not to incur massive losses on sale.

Greyhound may be more of an issue given how it’s losing money/market share but not so much UK Bus

First Group are not in the driving seat, their options are limited & shareholders patience is wearing thin..... they have sat on their hands for far too long. FGP can only sell what someone else is willing to buy, and valuations between buyers & seller may well be some distance apart. Should they not get any acceptable offers and remain as is, they are still stuck between and rock & a hard place.

 

[Robertj21a]

First Group are not in the driving seat, their options are limited & shareholders patience is wearing thin..... they have sat on their hands for far too long. FGP can only sell what someone else is willing to buy, and valuations between buyers & seller may well be some distance apart. Should they not get any acceptable offers and remain as is, they are still stuck between and rock & a hard place.

True, and being stuck between a rock and a hard place is precisely where O'Toole sat, for too many years. At least the new regime doesn't appear to be so blinkered. Let's hope that some progress is on the way, at last.

 

[TheGrandWazoo]

As I said, aside from Greyhound losing a sizeable chunk, and walking away from TPE/SWR, the rest is largely profitable.

Breaking up the group seems likely but sell off at rock bottom rates will mean massive write downs that will funded by....

 

[winston270twm]

As I said, aside from Greyhound losing a sizeable chunk, and walking away from TPE/SWR, the rest is largely profitable.

Breaking up the group seems likely but sell off at rock bottom rates will mean massive write downs that will funded by....

It maybe be profitable, but most of the margins at UK Bus Opoco's are typically well below it's peers, the other problem is not one bidder is likely to be interested in taking on the whole group as is, if anyone is, they are unlikely to be willing to pay a big premium due to all the risks involved / debt it comes with & time it will take to get margins to an acceptable level. I doubt walking away from TPE/SWR would be very easy, and that's also likely be costly and could potentially result in the remaining franchises being lost.

Even with First UK Bus, I doubt you'll find any other group willing to / able to buy it as a job lot, there will be more demand for the better operating companies, Stagecoach would struggle to bid for some due to competition concerns, Arriva don't seem interested in expanding in the UK, Rotala are keen to expand but will not overpay, NX are very cautious on expansion and price vs returns, Go-Ahead need a replacement CFO

It's not a good time to be looking to sell anything that's underperforming in the Transport sector.

 

[TheGrandWazoo]

Indeed, I don't see any existing business in the UK purchasing a job lot but likewise, I don't know if some fire sale is equally as likely. As I say, you can do that and then have to have another massive write down (as they did with Greyhound). Not certain how that returns shareholder value? UK Bus margins may not be brilliant but it's profitable (though in a zombie state); flogging off bits on the cheap probably doesn't help in the short term and that is the issue for First.

Perhaps the thing to do is to split the group into UK and US, and float or sell the US business (though I think Greyhound is a dead dog)? The UK business can then focus on what needs to be done to get the margins up. That will undoubtedly mean more trimming back - somewhere like Buses of Somerset is unlikely ever to make any real money.

As for TPE or SWR, we just don't know the nature of the contract and whether those franchises can be readily returned to the government and, if so, if punitive charges can be levied.

 

[winston270twm]

Indeed, I don't see any existing business in the UK purchasing a job lot but likewise, I don't know if some fire sale is equally as likely. As I say, you can do that and then have to have another massive write down (as they did with Greyhound). Not certain how that returns shareholder value? UK Bus margins may not be brilliant but it's profitable (though in a zombie state); flogging off bits on the cheap probably doesn't help in the short term and that is the issue for First.

Perhaps the thing to do is to split the group into UK and US, and float or sell the US business (though I think Greyhound is a dead dog)? The UK business can then focus on what needs to be done to get the margins up. That will undoubtedly mean more trimming back - somewhere like Buses of Somerset is unlikely ever to make any real money.

As for TPE or SWR, we just don't know the nature of the contract and whether those franchises can be readily returned to the government and, if so, if punitive charges can be levied.

I don't think Greyhound is a dead dog, indeed we don't know what property comes with it. But it does desperately need dragging in to the 21st Century to be able to compete with the rapid expansion of Flixbus. It will almost certainly not command anywhere near the figures previously touted. That's assuming there's a willing buyer...…

I think the only way FGP can create shareholder value is by either breaking up the group & selling off divisions to Private Equity other transport groups or by selling either Greyhound or selling First Group Trains division to Trenitalia or maybe even both, then reduce debt, and build a pot for bolt-on acquisitions to strengthen remaining core businesses.

A little bit more here, Liberium have a buy rating on FGP shares but only a price target of 110p.

http://www.proactiveinvestors.co.uk...nterest-from-private-equity-firms-204422.html

UK transport operator FirstGroup reportedly attracts interest from private equity firms
09:16 07 Sep 2018
Liberum said such interest in FirstGroup "seems inevitable" in the wake of prior interest from Apollo private equity funds
UK train and bus operator FirstGroup PLC (LON:FGP) has reportedly attracted the interest of private equity firms looking to buy the company

One of the potential bidders is CVC Capital Partners, which in the early stages of deliberations and is yet to make a formal offer, Bloomberg reported, citing “people familiar with the matter”.

The interested parties may make bids for part or all of the business, the sources were reported as saying.

FirstGroup, which owns Great Western Railway and South Western Railway in the UK and the Greyhound coach business in the US, declined to comment on the report.

The news comes after FirstGroup turned down proposals from Apollo Global Management LLC in May, saying they “fundamentally undervalued” the business.

READ: FirstGroup says considering all options to boost its value, having rejected two bids from earlier this year
Analysts at Liberum said: “Such interest seems inevitable in the wake of prior interest from Apollo private equity funds and hints of a more rigorous review of the business by management.”

They added: “We see an opportunity to bridge the gap between FirstGroup’s market-leading positions and its sub-par financial performance. Obstacles remain, notably the pension deficit and UK rail franchises, but none are insurmountable.”

Liberum maintained a ‘buy’ rating on the stock and a target price of 110p.

FirstGroup said in May that it had launched a review of the business as it reported an operating loss for the year ended March 31 and announced the resignation of chief executive Tim O’Toole.

READ: FirstGroup drops as it replaces its chief executive after profits fall; puts Greyhound bus unit under review
Shares in the company have fallen 13% this year amid investor concerns about tough competition for Greyhound and underperformance rail businesses in the UK drag on its performance.

In morning trading, shares edged up 0.2% to 96p.

It does seem that things are starting to move as interest is clearly building.....

 

[Surreyman]

Indeed, I don't see any existing business in the UK purchasing a job lot but likewise, I don't know if some fire sale is equally as likely. As I say, you can do that and then have to have another massive write down (as they did with Greyhound). Not certain how that returns shareholder value? UK Bus margins may not be brilliant but it's profitable (though in a zombie state); flogging off bits on the cheap probably doesn't help in the short term and that is the issue for First.

Perhaps the thing to do is to split the group into UK and US, and float or sell the US business (though I think Greyhound is a dead dog)? The UK business can then focus on what needs to be done to get the margins up. That will undoubtedly mean more trimming back - somewhere like Buses of Somerset is unlikely ever to make any real money.

As for TPE or SWR, we just don't know the nature of the contract and whether those franchises can be readily returned to the government and, if so, if punitive charges can be levied.

Fully agree with your comments re First UK Bus (And I speak as someone who would like to see Uk Bus broken up and sold).
The Rail franchises are in an interesting position, firstly they have a fairly good case to claim that they cannot fullfill all their Franchise service improvements/commitments due to Network Rail not delivering on infrastructure improvements. (Modern Railways is hinting that this is the case)
Secondly, in political terms, Dft/Grayling/Government/Conservative party really cannot afford another East Coast debacle, If TPE or SWR 'defaulted' however you choose to interpret that, then sure, First would come in for severe criticism from all the obvious parties but it would be political dynamite for the (currently very weak and divided) Government, handing the 'Re-Nationalise now' various groups a gift on a plate. (It's not just First who may have a future problem with existing Rail Franchises).
I would suggest Grayling/Dft & co are already planning some form of 're-negotiated' Franchise options to avoid future embarrassment (it will be dressed up of course).
As Lady Bracknell might have said 'To lose one franchise might be a misfortune' etc etc (And of course East Coast wasn't the first).

 

[DragonEast]

Let me ask a very stupid question. What incentive do we think the First Bus staff have to stick around while First make up their minds what they are going to do?

They're not all imminently due their pensions, surely?

 

[TheGrandWazoo]

Let me ask a very stupid question. What incentive do we think the First Bus staff have to stick around while First make up their minds what they are going to do?

They're not all imminently due their pensions, surely?

People have different motivations depending on their job (blue or white collar) or age/life stage.

How old are you? What do you do for a job?

 

[GBM]

Let me ask a very stupid question. What incentive do we think the First Bus staff have to stick around while First make up their minds what they are going to do?

They're not all imminently due their pensions, surely?

It's a job. Fairly well paid (ish). Little or no competition locally; better pay and conditions than local competitors.
Misguided loyalty! but the pay comes in week after week, so employees keep moaning about First, but keep on working (despite the flak from above)

 

[smtglasgow]

Let me ask a very stupid question. What incentive do we think the First Bus staff have to stick around while First make up their minds what they are going to do?

They're not all imminently due their pensions, surely?

I don’t think most First employees have many options. For drivers, aside from a few places where a competitor is openly recruiting (ie. Lothian in West Lothian), there will be just be the usual recruitment from neighbouring operators. Management vacancies are thin on the ground – the UK bus industry is very lean these days. Perhaps engineers are in demand – but as with drivers, is the travelling/relocation to another location compensated by higher wages/satisfaction?

A more interesting source of speculation might be the chances of management buyouts in the poorer performing divisions. What are the chances of another group wanting Somerset, for example? Going full circle with management buyouts might be the only credible option.

 

[Kahuna47]

Speaking as a current First driver, all of the points are spot on.

The old guys are just waiting out for their pension, whilst the newer guys are leaving as soon as their one year training bond runs out.

A lot of people are being poached by a couple of the local independents with the promise of good money. Problem is (apart from contract work) is they (according to their own drivers) are paying cash in hand and working over hours. Only takes the TC or even HMRC to come sniffing and those guys are out of jobs.

There's a lot to be pinned on that First are 'too big to fail'!

K

 

[Goldfish62]

Meanwhile I see that First Rail has been shortlisted for the Helsinki commuter rail network. There are six other bidders, mostly the usual suspects

 

[TheGrandWazoo]

Speaking as a current First driver, all of the points are spot on.

The old guys are just waiting out for their pension, whilst the newer guys are leaving as soon as their one year training bond runs out.

A lot of people are being poached by a couple of the local independents with the promise of good money. Problem is (apart from contract work) is they (according to their own drivers) are paying cash in hand and working over hours. Only takes the TC or even HMRC to come sniffing and those guys are out of jobs.

There's a lot to be pinned on that First are 'too big to fail'!

K

Let’s be honest. The reasons why people stay or go are individual.

I have a friend who’s a manager with FirstGroup and they pay well and have previously given them the training and development opportunities that they were looking for. That is more a consideration for the white collar staff and, as has been said, opportunities elsewhere may be at a premium.

Younger drivers or engineers may be more cash conscious - young families with partners not able to work full time? They may be concerned with money in the here and now. Saving for deposits on houses or with high repayments in relation to pay - they may be swayed by staying with an operator as a) they pay more and b) there’s greater scope for overtime? Or could be tempted away for an extra 50p an hour.

Older drivers may be more concerned with factors other than top line pay (mortgage paid, kids left home); can be motivated by length of service. Not necessarily pensions as such (they have paid in and it’s protected by government) but they’ll have a possible redundancy windfall. However, pensions may also be a factor in that First may well pay a higher contribution than other firms and as it’s done before tax, it might be a consideration.

Then you have the other, less defined factors. Proximity of local depot compared with an alternative employer - who fancies finishing their 10 hr shift at midnight and having a 30 min drive home or 10 mins (plus the associated cost). Even the culture or feel of a place is an issue and that varies from depot to depot in the same OpCo.

 

[Surreyman]

I wonder, is Wolfhart Hauser waiting for the new (whenever they appoint one) CEO to come up with a plan for the future of First?

As others have suggested, One option could be they could sell off the North America operations - Transit, Student and whatever is left of a restructured Greyhound, (I.E Exit US & Canada completely)
and use the sale proceeds to: -
1. Pay down debt.
2. Pump large amounts into the DB pension scheme(s)
3. Invest in new equipment i.e buses.
(They would of course have disposed of the best performing bits)

Or another option might be the reverse, to Exit Uk & Ireland and focus on North America, it would mean that they would have to sell some of the operations for a very low price.

I have no idea how the numbers might work out.

Meanwhile, Lothian expand westwards, Somerset CC announce need to make cuts in public transport and LEZ/CAZs are fast approaching.

 

[TheGrandWazoo]

Meanwhile I see that First Rail has been shortlisted for the Helsinki commuter rail network. There are six other bidders, mostly the usual suspects

Insert First Group and Finnish pun here...

I wonder, is Wolfhart Hauser waiting for the new (whenever they appoint one) CEO to come up with a plan for the future of First?

As others have suggested, One option could be they could sell off the North America operations - Transit, Student and whatever is left of a restructured Greyhound, (I.E Exit US & Canada completely)
and use the sale proceeds to: -
1. Pay down debt.
2. Pump large amounts into the DB pension scheme(s)
3. Invest in new equipment i.e buses.
(They would of course have disposed of the best performing bits)

Or another option might be the reverse, to Exit Uk & Ireland and focus on North America, it would mean that they would have to sell some of the operations for a very low price.

I have no idea how the numbers might work out.

Meanwhile, Lothian expand westwards, Somerset CC announce need to make cuts in public transport and LEZ/CAZs are fast approaching.

Group goodwill is £1496m - reduced markedly after the Greyhound revaluation that prompted the thumping loss and Tim’s sacking.

 

[Alexbus12]

First Manchester has put a bid into the DfT for 12 buses for the Bolton - Leigh 582 service. I think the future of Manchester may be safe now
https://assets.ctfassets.net/nv7y93...4fb6519/Appendix_2_-_FG_Letter_of_Support.pdf

 

[overthewater]

OR means any bids will be of a higher value.

 

[158756]

First Manchester has put a bid into the DfT for 12 buses for the Bolton - Leigh 582 service. I think the future of Manchester may be safe now
https://assets.ctfassets.net/nv7y93...4fb6519/Appendix_2_-_FG_Letter_of_Support.pdf

It's a handful of new buses for an ageing fleet with a few extra brownie points for taking government cash to make them electric. First Manchester needs a lot more than 12 buses, and there is likely to be uncertainty detering investment for a few years yet.

People are going to be very disappointed with the outcome of this ultra low emission fund. We already know of bids just within Greater Manchester for probably around three quarters of the funding - if demand elsewhere is anything like that there will be dozens of rejected bids for hundreds of buses.

 

[overthewater]

Today is First group awards, which are being held in Glasgow.. If you use the tags #firstbusawards18 on twitter you should find plenty.

 

[Bluebirdscot66]

Today is First group awards, which are being held in Glasgow.. If you use the tags #firstbusawards18 on twitter you should find plenty.

Would that be the managers voting for themselves

 

[winston270twm]

All seems to have gone very quiet on First Group speculation, the fact that Wolfhart Hasuer added to his FGP holding on 26th Sept, suggests nothing that could have a positive material impact on shareprice is happening in the background either.... other wise that would be construed as insider trading. Next update will be half year results 13th Nov.

1. Director Deals - FirstGroup PLC (FGP)

26 September 2018, 10:20
Source - SMW
Wolfhart Hauser, Chairman, bought 10,459 shares in the company on the 25th September 2018 at a price of 94.90p. The Director now holds 328,883 shares.

https://www.sharesmagazine.co.uk/news/market/6142957/Director-Deals-FirstGroup-PLC-FGP

 

[Robertj21a]

All seems to have gone very quiet on First Group speculation, the fact that Wolfhart Hasuer added to his FGP holding on 26th Sept, suggests nothing that could have a positive material impact on shareprice is happening in the background either.... other wise that would be construed as insider trading. Next update will be half year results 13th Nov.




https://www.sharesmagazine.co.uk/news/market/6142957/Director-Deals-FirstGroup-PLC-FGP

I always tend to believe that when significant issues like this go strangely quiet it's because a key player(s) is doing a lot of research and homework behind the scenes. Personally, I think that there may well be some significant news by the year end.