Sandell Urges FirstGroup to Refocus Its Attention on UK Rail and Bus

LONDON, December 11, 2013 /PRNewswire/ --

Sandell Asset Management

("Sandell")

Spin-off of FirstGroup US and Greyhound could deliver greater than 50%^[1] upside to shareholders

Believes actions will drive long term operational and strategic performance and unlock shareholder value

Sandell Asset Management Corp., one of the significant shareholders of FirstGroup plc. ("FirstGroup" or the "Company") with approximately 3.1% of the Company, today sent a letter to the Company's Board of Directors.  In the letter, Sandell welcomes the appointment of Mr. John McFarlane to succeed Mr. Martin Gilbert as Chairman of FirstGroup and urges the Company to take certain steps to drive long term operational and strategic performance and unlock shareholder value.  

Sandell believes that Mr. McFarlane's strategy of "Focus, Strengthen, Perform" as Chairman of Aviva was instrumental in the significant improvement in Aviva's performance, both operationally and financially, since his appointment.  Sandell believes Mr. McFarlane's expertise will be very beneficial to the Company at this crucial juncture as FirstGroup has struggled since the acquisition of Laidlaw, with the Company's shares returning -49% versus +156% for its peer group over the past 5 years.  

The steps being proposed by Sandell are outlined below:

1. Spin-off FirstGroup US: Spin-off and list First Student and First Transit (together, "FirstGroup US"), targeting the yield-hungry North American shareholder base willing to pay a premium for FirstGroup US's cash flows.  Immediately prior to the spin-off, FirstGroup US can raise debt appropriate to its business and distrbute the proceeds to FirstGroup UK.  FirstGroup shareholders will receive shares in the newly listed FirstGroup US entity;
   
2. Sell Greyhound: Fulfil the strategy announced at the time of the acquisition of Laidlaw International, Inc. by disposing of Greyhound,  a non-core asset.  We believe Greyhound would be an attractive asset for potential buyers, due to its iconic brand, strong cash flow generation and exposure to strengthening US consumer confidence and spending; and
   
3. Strengthen FirstGroup UK's balance sheet:  Use the proceeds of Steps 1 and 2 to repay debt and thereby: (i) better prepare the Company for the upcoming UK rail franchise bids, and (ii) equip the Company with cash to invest in the the operational turnaround of the UK Bus business.

Sandell believes that the buoyant current state of US capital markets creates the perfect opportunity for the Company to undergo such a transformation.  By refocusing segment management teams on superior operational performance and aligning equity compensation to drive best practice and increase accountability, both FirstGroup UK and FirstGroup US will be in a better position to succeed in the long term. Sandell's analysis shows that if FirstGroup were to pursue these steps, shareholder value would increase by greater than 50%^[1].  

Commenting on the proposals, Tom Sandell, Chief Executive Officer of Sandell Asset Management, said:

"Our established track record in company analysis and our sector expertise tells us that FirstGroup can turn around its historic poor perfomance by focusing on its UK Rail and Bus businesses. We will continue to engage with the Company and invite other shareholders to discuss our proposals so that together, as responsible owners of this business, we can set it on the right path to long term success."

-------------

^[1]  Sandell estimates based on publicly available information.

Important Notices

This announcement is not intended to and does not constitute or form any part of an offer to sell or subscribe for or an invitation to purchase or subscribe for any securities or the solicitation of an offer to purchase or subscribe for any securities. In particular this announcement is not a "financial promotion" for purposes of the Financial Services and Markets Act 2000, nor a prospectus.  Nothing in this announcement constitutes legal, tax, accounting, regulatory, investment or other advice of any kind to any person in any jurisdiction.

Certain statements in this announcement, including those regarding the possible or assumed future performance of the Company, its subsidiaries, investments or its industry or other trend projections may constitute forward-looking statements.  By their nature, forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause actual results, performance or developments to materially differ from those expressed or implied by those forward-looking statements.  Accordingly, no assurance is given that such forward-looking statements will prove to have been correct and any such statements speak only as at the date of this announcement and none of Sandell nor any of their respective affiliates or their respective officers, directors, employees, agents or professional advisers (all such persons together being "Relevant Persons") undertakes any obligation to update these forward-looking statements after the date of this announcement, save to the extent required by applicable law.  In particular, but without limitation, no representation or warranty is given by any of the Relevant Persons as to the achievability or reasonableness of, and no reliance should be placed on, any assumptions, targets, forecasts, projections or estimates with regard to anticipated future performance of the Company, its subsidiaries, investments or its industry.  

Certain information contained in this announcement has been obtained from third-party sources and whilst each of the Relevant Persons has no reason to believe that such information is false or misleading, no independent verification as to the accuracy or completeness of such third-party information has been undertaken and accordingly no representation or warranty is made by any of the Relevant Persons as to the accuracy or completeness of any such information.  The information and opinions contained in this announcement do not purport to be comprehensive, are provided as at the date of this announcement and are subject to change without notice.  None of the Relevant Persons undertakes any obligation to update the information and opinions contained in this announcement after the date of this announcement, save to the extent required by applicable law.  However, nothing in these notices shall constitute an exclusion of liability for, or exclude a remedy in respect of, fraudulent misrepresentation.

The release, publication or distribution of this presentation in jurisdictions other than the United Kingdom may be restricted by the securities and other applicable laws of those jurisdictions and therefore persons into whose possession this presentation comes should inform themselves of and observe any such restrictions.  Failure to comply with any such restrictions may constitute a violation of the securities and other applicable laws of any such jurisdiction, for which none of the Relevant Persons will accept any liability.  

Notes to Editors

About Sandell Asset Management Corp.

Sandell Asset Management Corp. is a leading private, alternative asset management firm specializing in global corporate event-driven, multi-strategy investing with a strong focus on equity special situations and credit opportunities.  Sandell Asset Management Corp. was founded in 1998 by Thomas E. Sandell and has offices in New York and London and a global staff of investment professionals, traders and infrastructure specialists.

Letter to the Board of FirstGroup plc

---Begins---

11 December 2013
 
The Board of Directors
FirstGroup plc.
50 Eastbourne Terrace
London W2 6LG

c/o Mr. John McFarlane, Chairman Designate / Mr. Martin Gilbert, Chairman

 By Email and By Hand

Dear Sirs,

Re: Proposals to transform FirstGroup plc

As you are aware, Sandell Asset Management Corp. ("Sandell") is one of the significant shareholders of FirstGroup plc ("FirstGroup" or the "Company"), with a beneficial ownership of approximately 37.3 million ordinary shares, or 3.1%, of the Company.  Sandell is a leading private, alternative asset management firm founded in 1998 that has offices in New York and London and a global staff of investment professionals, traders and infrastructure specialists.  

Sandell has been closely monitoring FirstGroup since the acquisition of Laidlaw International Inc. ("Laidlaw") and we are very familiar with the Company's businesses.  We, like other independent shareholders, evaluated the plan to turnaround the Company as set out by the Company in conjunction with the rights issue announced in May 2013 (the "Company Plan"). With the benefit of this evaluation and additional detailed analysis that Sandell has undertaken of the business, geographies and sectors that FirstGroup operates in, Sandell has put together a series of proposals which it believes will transform the Company by driving long-term operational and strategic performance, unlocking shareholder value and, critically, turning around the persistent historical underperformance of FirstGroup relative to its peers.

At this critical stage of the Company's development, we believe a strong and visionary leadership is essential.  Given this, we were pleased to learn of the appointment of John McFarlane as Chairman Designate and would like to take this opportunity to convey our congratulations and welcome to Mr. McFarlane.  We believe Mr. McFarlane's excellent track record, extensive experience and ongoing stewardship of Aviva will all be very beneficial to the Company.

As the Board will be aware, we have had a series of discussions over the past few weeks with the executive members of the Board, Tim O'Toole and Chris Surch, to present and discuss the proposals.  While we appreciate the time Mr. Surch has spent with us to help us further refine our analysis, it is with great disappointment that we have learned today that the Company does not intend to give any further consideration to these proposals.

The key elements of the proposals are:

1. Spin-off FirstGroup US: Spin-off and list First Student and First Transit (together, "FirstGroup US"), targeting the yield-hungry North American shareholder base willing to pay a premium for FirstGroup US's cash flows.  Immediately prior to the spin-off, FirstGroup US can raise debt appropriate to its business and distrbute the proceeds to FirstGroup UK.  FirstGroup shareholders will receive shares in the newly listed FirstGroup US entity;
   
2. Sell Greyhound: Fulfil the strategy announced at the time of the Laidlaw acquisition by disposing of Greyhound,  a non-core asset.  We believe Greyhound would be an attractive asset for potential buyers, due to its iconic brand, strong cash flow generation and exposure to strengthening US consumer confidence and spending; and
   
3. Strengthen FirstGroup UK's balance sheet:  Use the proceeds of Steps 1 and 2 to repay debt and thereby: (i) better prepare the Company for the upcoming UK rail franchise bids, and (ii) equip the Company with cash to invest in the the operational turnaround of the UK Bus business.

Following the completion of these steps, we believe that FirstGroup will become a leading transportation company focused primarily on the UK.  Further, we believe that these steps will unlock significant value for shareholders in the near-term while also allowing shareholders to participate as the Company's turnaround comes to fruition.  Furthermore, with cash proceeds accruing directly to the Company, we also believe our proposals will benefit other stakeholders by, inter alia, improving the Company's credit standing both with its creditors and with the trustees of its pension plans.

In devising the proposals, Sandell has taken into account key factors, including, but not limited to:

• the broad contract base of the student and transit businesses;
• current buoyancy in US capital markets with low interest rates and strong valuations for assets with predictable cash flows;
• interested buyers and investors in the North American businesses;
• segmented businesses with separate management teams;
• the Company's ongoing pension obligations;
• the terms of the Company's existing debt obligations;
• the Company's credit rating;
• additional public company costs;
• opportunities in UK market which if they are to be fully exploited by the Company require a strong balance sheet; and
• consistency with the Company Plan's objective to turnaround its businesses.

We believe there will be strong shareholder support for our ideas.  We are of the firm view that the time to implement and introduce this transformational change in the Company is now, given the favourable market conditions, both in the US capital markets specifically and in the credit markets generally. The Company has taken the first step towards this transformation in the appointment of Mr. McFarlane. The Board and management must now take the next steps to drive long-term operational and strategic performance, unlock shareholder value and turnaround the persistent historical underperformance of FirstGroup relative to its peers.  

As shareholders in the Company we take our stewardship duties seriously and it is in this context that we intend to publish the attached press release.   We are sure that the Directors of FirstGroup will similarly seek to comply with their respective fiduciary duties and to promote the best interests of the Company.  We invite the Board to reconsider its response to the above proposals and to engage in a full and meaningful dialogue with Sandell and other interested shareholders as a matter of urgency.  We look forward to hearing from you.  

Yours sincerely,

Thomas E. Sandell
Chief Executive Officer
Sandell Asset Management Corp.
Phone: +1 212-603-5700

For further information contact:

Sandell Asset Management Corp. (London)
Felix Lo
+44(0)20-7881-8300

Bell Pottinger (Financial public relations)
Victoria Geoghegan / Nick Lambert
+44(0)20-7861-3232