FirstGroup revved up by City hopes of a higher Apollo bid

Shares in FirstGroup, the operator of South West Trains, moved sharply higher on Thursday as investors anticipated that private-equity group Apollo would come back with a better offer for the transport group.

FirstGroup, which also owns Greyhound bus services in the US, revealed yesterday that it had rejected an all-cash offer from the world’s biggest private-equity investor, which owns businesses ranging from restaurants and chemical companies to country clubs.

The shares climbed a further 9% or 9.2p today to 111p, pushing the company’s value to £1.35 billion, as investors bet Apollo, which raised a giant $23 billion (£16 billion) European fund last year, would return.

Investors are also considering the possible break-up value if Aberdeen-headquartered FirstGroup chooses to sell off parts to other operators to provide a defence against Apollo’s attack.

FirstGroup called the offer “opportunistic”, “preliminary” and “highly conditional” in a terse statement but Apollo has until May 9 to make a formal bid. At one point last month, shares in FirstGroup hit a low of 77p after the transport operator cut its forecast for the year, saying bad weather meant earnings from US coach and bus services would be lower.

FirstGroup has been in the sidings for years, not paying a dividend since an emergency rights issue in 2013, despite benefiting from inflation-linked increases in rail fares and increasing passenger numbers.

It has also faced the wrath of travellers, particularly for unreliable services into Paddington and during its operation of the Thameslink routes.

Now it is also facing political uncertainty with the Labour party threatening to nationalise the railways and the National Audit Office investigating the franchise system, under which private rail operators bid for long-term contracts.