FirstGroup selling UK operations?

[Ramblin Rich]

Haven't seen this mentioned yet. From the Guardian:

"FirstGroup, one of the biggest British transport companies, is set to turn its back on the UK by selling off its bus division and possibly withdrawing from UK rail operations, following pressure from major shareholders"

https://www.theguardian.com/business/2019/may/30/firstgroup-to-sell-greyhound-as-it-bows-to-activist-investors

Seems the major shareholder investment group thinks it's future is in US school bus operations! Somewhat worrying for UK rail and bus services.

[black and decker boy]

First Group itself seems to disagree with Coast Capital (which only owns 9.8%) and aims to keep U.K. Rail.

 

it has put Greyhound and U.K. Bus up for sale as it’s response to the demands being made.

 

With the way DfT are managing refranchising and disqualifying U.K. bidders at will, you wonder whetherFirst would take on those open ended risks or be disqualified themselves.

[jim.snowdon]

My impression of FirstGroup (working with them, not for them) was of a highly risk-averse company that would, if asked to tender against any open-ended risk, do what Stagecoach did and submit a non-compliant bid avoiding that risk. 

 

I would disagree with your assertion that DfT are disqualifying bidders at will. Technically, the bidders are disqualifying themselves, but only as a consequence of the DfT having set commercially unreasonable demands.

 

Jim

[cheesysmith]

The people who are after first group are just wanting the assists and are not interested in rail, as the franchise has no assists to sell off. They are just vulture capitol company who break up companies and sell them off for more than they are worth. Why else would they want to abandon the rail bits first already operate that makes a profit and be so interested in the bus side that ATM barely makes monies but ha lots of land and busses to sell on?

[wombatofludham]

According to the BBC report from yesterday, First Student (the American yellow bratbus operation) made 60% of the operating profit last year (although First Group as a whole made an annual loss of £97.9million).  The profit margin on the Student transport operation was 9.4% whilst for Greyhound the margin was much lower at 1.8%.  Interestingly the UK bus operation had a profit margin of 7.5% so not a complete basket case, especially as FirstBus UK has been ruthless in cutting out under performing sections of the business, including selling off some of it's operations in Manchester.  However, I can see why the company wants to refocus on the Yellow Bus operation, if it contributed 60% of the operating profit last year.  It seems that the FirstBus UK operation isn't being considered for sale because it is a drain on the group, but because it is in a relatively strong position but a completely different business to the North American operations which the company wants to focus on.  I suspect it will be sold to raise capital to consolidate the American operations and given the relative strength of Stagecoach and Arriva and their market dominance, I suspect it will be offloaded as a complete going concern due to monopoly issues.  It will be interesting if any of the smaller groupings, like Go Ahead or National Express might put in a bid to raise their market presence.

 

One interesting comment on the UK operations was that the " rail division has generated £331m for the group over the last five years but the group now has "concerns with the current balance of risk and reward being offered".  That sounds like a barely coded broadside to DfT over the pensions debacle that Stagecoach fell foul of.  

[Mike Storey]

If First do pull out of bidding for future franchises, it reduces the shortlist for the West Coast Partnership to just one - a Chinese/Spanish consortium (The Stagecoach consortium having already been disqualified). The winner was supposed to be announced in June. I would guess there are some very serious discussions going on right now......

 

[mdvle]

3 hours ago, wombatofludham said:

whilst for Greyhound the margin was much lower at 1.8%.

 

Reflecting that intercity bus service in North America is in trouble.

 

Last year Greyhound Canada (which First does own) cut all of its service in Western Canada, leaving it to only serve the two largest provinces.

 

 

[jjb1970]

Fear not, DafT will save the day, after all what could possibly go wrong with DafT in the franchise driving seat?

[cheesysmith]

Latest gossip was go ahead had bought all the UK bus, leaving first to concentrate on the USA bits. The rail groups are separate companies under the first group. Will they be retained, sold, or allowed to run and die when complete?

[John M Upton]

There has also been the rumour doing the rounds for several weeks now that DB are looking to sell off Arriva's bus operations with Stagecoach rumoured to be warming up their chequebook.  Their boss Brian Souter just trousered a tidy sum from the sale of Alexander Dennis which he with others rescued some years ago so he has money burning a hole in his wallet...

[Mike Storey]

8 hours ago, John M Upton said:

There has also been the rumour doing the rounds for several weeks now that DB are looking to sell off Arriva's bus operations with Stagecoach rumoured to be warming up their chequebook.  Their boss Brian Souter just trousered a tidy sum from the sale of Alexander Dennis which he with others rescued some years ago so he has money burning a hole in his wallet...

 

The bit about DB is not rumour. It is true - all non-domestic operations by DB (apart from consultancy, international rail operations and a couple of other things) are for sale, as are parts of DB Schenker. They need the money. If Stagecoach can afford the bus operations, all well and good, but I can see a possible Competition & Markets Authority issue being raised here, if that creates local monopolies and if UK bus service tendering by majors, is reduced to just them, National and Go Ahead, other than the scattering of quasi-municipal outfits still in play. They may be forced to sell to someone else, like Abellio or RATP. Getting a bit like rail franchising?

 

[The Stationmaster]

On 31/05/2019 at 11:03, wombatofludham said:

According to the BBC report from yesterday, First Student (the American yellow bratbus operation) made 60% of the operating profit last year (although First Group as a whole made an annual loss of £97.9million).  The profit margin on the Student transport operation was 9.4% whilst for Greyhound the margin was much lower at 1.8%.  Interestingly the UK bus operation had a profit margin of 7.5% so not a complete basket case, especially as FirstBus UK has been ruthless in cutting out under performing sections of the business, including selling off some of it's operations in Manchester.  However, I can see why the company wants to refocus on the Yellow Bus operation, if it contributed 60% of the operating profit last year.  It seems that the FirstBus UK operation isn't being considered for sale because it is a drain on the group, but because it is in a relatively strong position but a completely different business to the North American operations which the company wants to focus on.  I suspect it will be sold to raise capital to consolidate the American operations and given the relative strength of Stagecoach and Arriva and their market dominance, I suspect it will be offloaded as a complete going concern due to monopoly issues.  It will be interesting if any of the smaller groupings, like Go Ahead or National Express might put in a bid to raise their market presence.

 

One interesting comment on the UK operations was that the " rail division has generated £331m for the group over the last five years but the group now has "concerns with the current balance of risk and reward being offered".  That sounds like a barely coded broadside to DfT over the pensions debacle that Stagecoach fell foul of.  

The current UK rail problem area for First is SWR where they are 'talking with the DfT' according to press reports yesterday.

[John M Upton]

Roughly translated as 'Give us some more money or we hand the keys back'.

 

Not all that surprised to be honest.

[cheesysmith]

How about if first upset the DaFT and sold the rail side to stagecoach. I for one would PMSL.

 

[mdvle]

13 minutes ago, cheesysmith said:

How about if first upset the DaFT and sold the rail side to stagecoach. I for one would PMSL.

 

 

But would anyone buy the rail side given the reported financial problems at SWR?  Far better to let First/SWR and DaFT sort that out first one way or another.

[Talltim]

I get the impression that First themselves don’t want to sell off parts, it’s purely to appease Capital Holdings, who are only in it for short term gain. Can someone who knows more about these things explain how an group holding only 10% of the shares can have such an influence?

[roundhouse]

I am sure that Grayling The Great will sort it all out before he goes

[mdvle]

On 01/06/2019 at 07:55, Talltim said:

I get the impression that First themselves don’t want to sell off parts, it’s purely to appease Capital Holdings, who are only in it for short term gain. Can someone who knows more about these things explain how an group holding only 10% of the shares can have such an influence?

 

Not necessarily the best to answer this, but my superficial understanding is that there are a number of options absent a majority shareholder to oppose the activist(s).

 

The most obvious would be to continue buying shares, though few want to spend that much time and money.

 

Other alternatives include:

- convincing other shareholders to agree with them, thus creating a majority to engage in a proxy issue to force the company to do something at the annual meeting

- create negative publicity, which can hinder the companies plans

- likely many more

 

As for the story at hand, it is easy as a non-shareholder to say First should be left alone. 

 

However, I would agree there is certainly an argument to be made for the sale of Greyhound as it shows every indication to be a business in decline, and perhaps even terminal decline at least as it currently is formed.  Despite efforts to turn things around it is still in trouble and it likely is time to bail out so they can focus more on the better performing parts of the company.

 

I would also argue that the rail division needs some urgent attention, for SWR to have gotten into so much trouble so quickly is an indication of a bid that should never have been made.  It may be some changes need to be made, or it may be they need to reconsider participating in the rail franchise system, but there is a problem from a First perspective.

 

So perhaps in this case, as much as activist and vulture investors are so often in the wrong, that they have a point.

 

[black and decker boy]

Report elsewhere by a respected rail journalist that Stagecoach has given up and walked away from U.K. Rail with senior people gone or being made redundant 

 

looks like the days of U.K. businesses running U.K. rail are numbered if First do walk away. It would leave only Go-Ahead.

[HillsideDepot]

Oh for the days when we were Badgerline Group and all the shares were held by employees. Of course, many from those days did very well out of First as it prospered, but it is sad to see how the group has floundered in the past decade or so.

 

We used to be told that we were biased as 'Badgers' and of course we'd be anti-Grampian within First, but at the grass roots level people could sense things were going wrong during the Lockhead era. But First kept growing, rail franchises, in the US, and even an airport. Yet niggles persisted, and whilst the staff couldn't see enough to know what was wrong we would look at local "battles" that we were clearly losing. Whether it was the small upstart "cowboy" bus firm made good (and large!) while our standards fell, constant changes of management, and in our case merging and de-merging, then merging a different way with our neighbouring subsidiaries, we knew something wasn't right.

 

I got out 15 years ago but the decline continued locally. Now I work for the local authority and can see First, Stagecoach and GoAhead from a semi-'inside' position; the difference between a dead-hand from above and the ability to work locally has been clear to see, as indeed has been the subsequent lifting of the dead-hand allowing local initiatives (under James Freeman, an acknowledged successful manager) at First. But it all looks to have been too late. Mr Freeman and West of England still have much to do. Whether they are able to complete the task, and for which share holders remains to be seen.

 

And that's just one subsidiary, arguably one of the better ones.

 

It's easy to criticise "Worst Group"; they offer so many valid opportunities to do so. But for those of us who were in at the beginning it has been a long and painful decline, and we've not reached the conclusion yet.

[royaloak]

On 31/05/2019 at 07:43, black and decker boy said:

you wonder whetherFirst would take on those open ended risks or be disqualified themselves.

Nobody in their right mind would take on those risks.

[royaloak]

On 01/06/2019 at 11:19, John M Upton said:

Roughly translated as 'Give us some more money or we hand the keys back'.

 

Not all that surprised to be honest.

Which could also be translated as 'we effed up by offering DOO in the first place and either want out now, or want more money so we can keep the Guards and end this dispute because we are running out of time with the impending PRM rules coming into effect on January 1st'

[royaloak]

On 01/06/2019 at 12:38, mdvle said:

 

But would anyone buy the rail side given the reported financial problems at SWR?  Far better to let First/SWR and DaFT sort that out first one way or another.

Stagecoach run SWT were fine, it was only when First Group took over with their DaFT inspired DOO scheme they hit the rocks.

[AMJ]

Is the time right for the large companies to split into smaller units?  In Leeds the first logo on the new buses is getting smaller and I wonder if they are looking to float say 49% of it on stock exchange.

 

The mention of Abellio which is the Dutch railway company.  Now should we set up a company called British Railway to take over foreign train companies?

 

[Mike Storey]

22 minutes ago, black and decker boy said:

Report elsewhere by a respected rail journalist that Stagecoach has given up and walked away from U.K. Rail with senior people gone or being made redundant 

 

looks like the days of U.K. businesses running U.K. rail are numbered if First do walk away. It would leave only Go-Ahead.

 

Interesting. But these reports suggest a company, along with Virgin and a German-owned company (although now up for sale), Arriva, that is not lying down and walking away:

 

https://www.theguardian.com/business/2019/may/08/stagecoach-launches-legal-action-over-rail-franchise-competition-ban

 

https://www.theguardian.com/business/2019/may/24/virgin-trains-takes-government-to-court-over-west-coast-route

 

The crux of the matter surrounds a recent statement by the Pensions Regulator that he believes the TOC-employee pensions (collectively) are under-funded by around £7.5 billion. But that awaits a re-evaluation by actuaries acting on behalf of the pension schemes, which may or may not result in major increases in TOC liabilities (as well as potentially major employee contribution changes, which may result in industrial action). The DfT has confined its liability, in the franchise terms, to current deficits, as at the 2019 valuation (which does not include the figure from the pensions regulator). So the TOCs would have an open-ended potential liability. I am not entirely sure how this differs from previous TOC contracts, as pension schemes are re-evaluated every 3 years anyway, so any prudent bid would include reasonable liability provision, in this case, around £1 billion. But that may well make it uncompetitive.

 

If all this is true (and the High Court action suggests there is sufficient basis to it, for them to waste money on the legal profession), then perhaps the most relevant question is - why or how did Dutch firm, Abellio (wholly owned by the Dutch govt via NS) continue to bid, and won? Did they include such a major provision?

 

My guess, for the little that it is worth, is that much of this is to prove a point pending the Williams Review outcome, as Beardie has alluded (see my seperate, recently started thread on this), but is also politicking over the biggest prize of all, the West Coast. If they disqualify Virgin/Stagecoach/SNCF and have already kicked out Stagecoach they are left with just one (short-listed) bidder, and that particular bidder may confine them to just one supplier for the HS2 fleet. Not good.