A second major shareholder has joined an investor drive to eject the board of FirstGroup as the transport group faces an emergency meeting on Tuesday that could result in Britain’s most lucrative rail franchise again slipping from its grasp.
Columbia Threadneedle said it was backing resolutions brought by activist investor Coast Capital to replace seven directors including the chairman and chief executive of the one of the UK’s biggest bus and train operators.
Columbia and Coast each own about 10% of the shares, slightly more than Schroders, which was reported by Sky News to be planning to vote against the board but has not yet confirmed its position.
The meeting comes at a crucial moment for FirstGroup as it awaits the award of the West Coast partnership franchise, which will operate intercity trains on the London-Glasgow line and help introduce the first HS2 highspeed services after 2026.
FirstGroup, backed by Italy’s state-owned Trenitalia, has been rumoured for several weeks to be the preferred bidder in a remaining shortlist of two, against a bid led by Hong King’s MTR. According to industry sources, the decision was taken within the Department for Transport last month. However, the award of the franchise has been deferred until the outcome of the Coast manoeuvres, which could potentially leave the DfT in another embarrassing franchising crisis should the board be replaced.
Coast, a New York based hedge fund, has demanded that FirstGroup exits UK rail which it has described as “extraordinarily destructive of capital”. James Rasteh of Coast has threatened to sue, and to “hold each member of management team and board member personally and fully accountable” if FirstGroup accepts any new rail franchise.
The company has made writedowns of more than £100m already on each of its last two franchise wins: TransPennine and South Western, and the size of its bid to win West Coast could further anger shareholders if it significantly exceeds MTR’s.
Legal action over the franchise is also being brought against the DfT by Stagecoach, Virgin’s partner in running the West Coast route since privatisation. Stagecoach has been seeking to overturn its disqualification from the competition for a non-compliant bid, refusing to accept pension liabilities.
FirstGroup last month indicated it might turn its back on UK rail after the expiry of its current contracts, which also include Great Western Railway and the open access operator Hull Trains. Chief executive Matthew Gregory said the group had “concerns with the current balance of risk and reward being offered” in rail, and would await the outcome of a government-backed review of the industry.
In a strategy document issued last month, the group also announced plans to hive off its UK bus operations, and sell the famous Greyhound coach line in the US. It would retain its highly profitable US school bus businesses.
A FirstGroup spokesperson said: “Coast’s aim is to seize control of a UK plc without paying a premium. Their plans are not in the best interests of all shareholders, and would leave the company with higher debt. In contrast, we’ve set out the right strategy for the future, based on facts and up to date knowledge. We have an independent and diverse Board, with the right skills to deliver these plans at pace.”
FirstGroup has barred press from attending the emergency meeting, to be held in London on Tuesday afternoon, when the extent of the shareholder rebellion will be made clear.
A spokesman for Coast said: “Shareholders will vote as they see fit. Coast is not going away, whatever happens. If First gets the award of the West Coast capital it will destroy more capital, and there is still an AGM coming up.”
