FirstGroup PLC (LON:FGP) has agreed on the sale of its First Student and First Transit bus operations in the US to infrastructure investor EQT for US$4.6bn (£3.3bn).
Cash proceeds from the sale will be £2.19bn net, which will be split between reducing the group’s debt, paying back COVID-19 loans to the UK government, strengthening the pension fund and a payout of £365mln or 30p per share to investors.
Following the disposals, FirstGroup said its debt will reduce from £1.4bn at the end of March 2021 to around £100mln.
David Martin, FirstGroup’s chairman, said he was delighted with the sale, which followed a strategic review of all of the group’s businesses.
Going forward, the company will concentrate solely on its UK rail and bus businesses, he added.
First Bus has a 20% share of the bus market outside of London while First Rail owns all or part of GWR, South Western Railway and TransPennine Express.
UK bus services currently are being subsidised by the government due to the reduction in passenger numbers as a result of COVID-19 lockdowns.
FirstGroup said it expects bus passenger volumes will recover to between 80 and 90% of pre-pandemic levels during the first year after social distancing restrictions on public transport end.
The group said that of the £2.19bn cash receipts, £300mln will be used to repay government COVID-19 funding, £635mln to cut debt, £65mln will go on make-whole costs and £345mln for retained liabilities.
A further £336mln will go into the pension scheme and £365mln to shareholders, leaving £144mln cash for the retained group.
First Student runs the yellow school bus scheme across the US, while First Transit has an extensive bus network.
The London-listed company had been under pressure to offload its US businesses from activist investor Coast Capital.
Broker LIberum said the disposal was a clear positive, allowing the group to be simplified, with reduced leverage and legacy liabilities addressed.
First Group sold the US-based Greyhound coach business at the end of 2020.
Shares rose 5% to 89.7p.
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