Rail and bus operator FirstGroup PLC (LON:FGP) has “unanimously rejected” a potential takeover offer from private equity firm Apollo Management.
The FTSE 250 group – which has seen its share price soar by almost a third over the past two weeks – informed investors of the approach after market close on Tuesday.
‘Opportunistic’
FirstGroup said Apollo, one of the big US buyout firms with more than US$200bn of investments across a range of sectors, had come to it with a “highly conditional” all-cash offer.
But the transport group labelled the approach as “opportunistic”, claiming that it “fundamentally undervalues the company”.
“Accordingly, the board of FirstGroup has unanimously rejected the proposal,” read last night’s statement.
FirstGroup cautioned there could be “no certainty that any firm offer will be made”. Under the UK’s takeover code, Apollo has until May 9 to either make a firm offer or step back.
FirstGroup ‘clearly undervalued by market’
“We have long considered FirstGroup to be undervalued as recent poor performance has caused the market to overlook its leading or near-leading positions in all of its main markets,” wrote Liberum analyst Gerald Khoo in a research note.
“We had always hoped that had it not been possible for an organic turnaround to be executed successfully and in full, there would be transactional alternatives to crystallise value, whether initiated by management or external parties.”
The analyst explains that a takeover of FirstGroup is far from easy though, with the UK government becoming more hostile to foreign takeovers.
Khoo added: “The acquisition of a large UK employer providing essential services to the public by a foreign private equity fund seems unlikely to be welcomed in the current political environment.”
Breaking up isn’t easy
On top of that, he would expect a private equity buyer to break up FirstGroup and hive off some of its businesses while keeping others, which could be an expensive process.
“Beyond the potential political obstacles, the one-off costs of breaking up the group could be substantial.”
FirstGroup shares closed up 7.4% on Wednesday at 101.8p, valuing the company at £1.23bn.