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FirstGroup reaches end of the line of Greyhound bus ride

Stock MarketsMay 30, 2019 07:02AM ET
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© Reuters. Greyhound buses are lined up in New York City

By Noor Zainab Hussain and Tanishaa Nadkar

(Reuters) - Dallas-based Greyhound was put up for sale by Britain's FirstGroup on Thursday as the North American bus line battles to compete with growing pressure from low cost airlines.

Greyhound has been a household name in North America since it was founded in 1914, with prominent roles for its buses and their running dog logo in movies, music and motorcycle stunts.

FirstGroup, which bought Greyhound for $3.6 billion including debt from Laidlaw International in 2007, plans to sell the bus line and spin-off its UK operator First Bus to head off shareholder pressure, lifting its shares by as much as 13%.

Changing travel trends have meant a bumpy road for Greyhound from the highs of featuring in Frank Capra's 1934 movie "It Happened One Night" and Simon and Garfunkel's "America" in 1968 to the low of filing for bankruptcy protection in 1990.

Greyhound survived and is now the only operator of scheduled intercity coaches in North America, carrying around 17 million passengers a year and serving some 2,400 destinations.

FirstGroup invested in expanding and modernizing the Greyhound fleet and terminals as well as marketing, but this has not proved enough to give it the returns shareholders expect.

"The issues at Greyhound have revolved around the impact of low cost airlines coming into some of our markets and (the) relatively low oil price over the year, which in the U.S. means more people get into their cars," FirstGroup Chief Executive Matthew Gregory told reporters on a call.

Gregory said FirstGroup had appointed investment bankers to launched a formal sale process, but declined to place a price tag on Greyhound, which reported revenue of 645 million pounds in the year ended March 31.

'ICONIC BRAND'

"It's not really in my interest to tell you what I think the value might be for the business, but its a iconic brand, has the biggest intercity network of coaches in the U.S., so I think its something a lot of people will be interested in," he added.

FirstGroup, which also runs tens of thousands of yellow school buses in the United States, said Greyhound has limited synergies with its predominantly contract-based businesses in North America and shareholders would get best value if it was sold.

Its emphasis will now be on First Student and First Transit, its core contracting businesses in North America.

"Greyhound is in long term structural decline and absorbs considerable management time without offering upside potential, and therefore disposing of it is optimal," Investec said.

FirstGroup, which replaced its chief executive last year and has not paid a dividend since 2013, has rejected two approaches from private equity firms and has been targeted by Canadian activist investor West Face Capital.

Coast Capital, its second-largest shareholder, has been seeking to replace six of its eleven directors.

FirstGroup, whose shares fell by 23.3% in 2018, also cast doubt on its future in British railways, saying it had "reduced expectations" for its two most recently awarded franchises due to timetabling, infrastructure issues and strike action.

"Any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders," it added.

FirstGroup reaches end of the line of Greyhound bus ride
 

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