Half a decade ago, FirstGroup could boast it was “one of the world’s great transport groups”. That, at least, was the line used by Martin Gilbert when he bowed out as chairman after 27 years and, broadly speaking, it was correct. FirstGroup had grown from a few regional bus routes in Scotland to become very big in the UK and the US, as it still is today. There are 100,000 employees, the group carries 2 billion passengers a year and revenues last year were £7.1bn.
So not the sort of company to be pushed around by a small but mouthy New York hedge fund? Well, actually, it might be.
Coast Capital’s campaign to vote off most of FirstGroup’s board looked under-powered when launched a month ago, a view apparently confirmed when the best candidate among its slate of alternative directors, former Arriva chief David Martin, hopped off the rebels’ charabanc. But the showdown comes at Tuesday’s shareholder meeting and Coast, against the odds, will have an impact.
Columbia Threadneedle, with a 10% stake, says will join it in voting against the reappointment of Wolfhart Hauser, the FirstGroup chairman since 2015. Schroders, with a 9% holding, is thought to be in the same camp. Given that Coast itself has a 10% holding, the dissent is serious, even if none of the hedge fund’s nominees achieve backing.
How has it come to this? The long-view answer is that FirstGroup’s $3.5bn purchase of US group Laidlaw in 2007 was grossly overpriced and the share price has been falling almost ever since. The short-view answer is that Hauser and chief executive Matthew Gregory’s new break-up strategy is messy and unconvincing. The Greyhound coach business in the US is to be sold; the UK business will be “separated”, although the pensions position is unclear; and FirstGroup seems in two minds about whether to carry on in UK rail.
The appeal is supposed to be the focus on First Student, a US school bus operator, and First Transit, a North American bus business. Yet Coast’s counter-argument has force: the under-performing assets also matter and wouldn’t it be better to get some transport specialists on to the board to have a look?
The hedge fund has been denounced by FirstGroup as opportunist, self-interested and short-termist. It may all those things, but it has also made some reasonable points. If the net result is an enforced shake-up of FirstGroup’s underperforming board, the outcome would be fair.
Rueing the day
Over at banknote printer De La Rue, another perennially disappointing UK mid-market stock, the directors are taking the opposite approach. Rather than try to stay in post, they seem anxious to leave.
Martin Sutherland “agreed to step down” as chief executive at the end of last month. Now chairman Philip Rogerson says he wants to retire. But he may be beaten to the exit by Andrew Stevens, the senior independent director who wants to concentrate on “other commitments”, although he neglected to say which ones.
This, apparently, is an “orderly” succession process. Everybody is hanging round until a replacement arrives so, yes, one could say there’s a plan. But one could also just call the process slow.
Trouble arrived at the printworks a year ago when Sutherland launched his silly attempt to whip up a patriotic storm when a £260m contract to print the UK’s post-Brexit passport was awarded to Franco-Dutch group Gemalto. That futile effort was abandoned after a fortnight but more recent news has involved a profits warning and a strategic review.
Shares in De La Rue, a 200 year-old company, now sit close to a 15-year low and the business, remarkably, is worth just £330m. It also now has three lame-duck directors. If a foreign bidder hovers in the wings, this is its moment to pounce unfortunately.
The material nature of reality
Wanted: a Labour-leaning City-type who can deliver some facts of life about markets to John McDonnell.
In outline, the shadow chancellor’s promise to make companies focus on cutting carbon emissions is welcome. There is a problem, however, when McDonnell says this: “When we delist companies that fail to meet environmental criteria from the London Stock Exchange, investors can be confident that their money is not going on making the world uninhabitable for their children.”
Sorry, but companies will not disappear if they are de-listed in London. Rather, they will seek to re-house themselves on stock markets overseas. New York, Hong Kong, Singapore and several EU countries would probably oblige. Nor would those rival venues insist that 10% of the shares are gifted to a workers’ “ownership fund”.
Labour’s proposed reforms do not merely have to be well-intentioned – they also have to withstand an encounter with reality.
