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Sandell Asset Management urges FirstGroup to sell US businesses- report

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December 11
2:21 AM 2013

A Financial Times report said UK bus and rail operator FirstGroup has been urged by one of its largest shareholders to divest its businesses in the US to be able to pay down debt. Hedge fund Sandell Asset Management has written a letter to the board of directors to FirstGroup asking it to consider selling trans-American bus service Greyhound as well as its school bus division. Sandell Asset Management holds a 3% stake in FirstGroup, the report said.

FirstGroup purchased both businesses in 2007 when it took over Laidlaw in a $3.6 billion deal. Financial Times reported that the attack capped a harsh year for the UK transport firm. In May, the value of FirstGroup shares was halved after the announcement of a rights issue worth £615 million. The company also scrapped dividends so it could reduce £2 billion from the debt it took to be able to finance the acquisition of Laidlaw.

Founder Tom Sandell wrote in his letter that the proposals of his hedge fund will raise the shares of FirstGroup from 116 pence to 199 pence. According to the report, another contributor to FirstGroup's problems is its failed offer for the mainline rail franchise of UK West Coast. The bungled tender process led the government to reverse its decision to give the contract to FirstGroup and gave Virgin Rail the right to operate the route instead.

However, a source close to First Group told the Financial Times that there were structural flaws and inaccuracies in the proposals of the hedge fund.

Sandell is also putting the pressure on Bob Evans Farms to break up its restaurant and food processing businesses. It also urging the company to undertake a sale and leaseback of its 561 restaurants, the report said. Citing research from Citi, Financial Times said shareholder activism has been on the rise for the past seven years.

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