Deal view

Schroders tells FirstGroup to reject US offer

The train and bus operator is evaluating the offer

FirstGroup’s biggest shareholder has urged the bus and rail company to reject a £1.2 billion takeover approach from a US private equity firm.

Schroders owns almost 18% of the Aberdeen-based business, which operates a series of bus franchises around the UK in addition to the rail services Avanti West Coast, Great Western Railway, South Western Railway and TransPennine Express.

The fund manager argues that the proposed 163.6p offer from I Squared Capital, announced last month, fails to reflect the scarcity value of one of the few big companies in the sector.

It comprises 118p in cash with an additional 45.6p based on the outcome of the First Transit earnout and the net proceeds realised from the Greyhound legacy assets and liabilities.

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Andy Simpson, Schroders’ UK equity fund manager, told The Sunday Times: “As the largest shareholder in FirstGroup, we consider the level and structure of the bid approach … unattractive.

“The proposal is highly conditional and leaves shareholders exposed to downside risks at a time when we believe the stand-alone company has attractive growth prospects, a strong balance sheet and a depressed valuation.”

He added: “We firmly believe that any offer needs to fairly reflect the attractive characteristics and scarcity value of the underlying assets.”

Shares in FirstGroup have been trading by as much as 30p below proposed bid price, indicating a lack of belief among investors that any eventual offer will be at the upper end.

In accordance with the takeover code, I Squared is required to make a decision on whether or not to make an offer by no later than 5pm on 23 June.

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