First Group plans derailed by shareholder activists

May 25, 2013

First GroupThe First Group transport company has run into difficulties compounded by the loss of a Government contract after a battle with Richard Branson, and board room resignations influenced by shareholder activists

LWD subscribers were alerted to a leadership story at First Group the bus and rail transport outfit last year [Oct 2012] . The post noted that

Richard Branson called foul when his company Virgin Trains lost the franchise recently for the West Coast Main Line services from Scotland to London. His reaction was justified when the Department of Transport was forced to admit there had been flaws in the bidding process.

Virgin Trains has run the West Coast Main Line since 1997. When it recently lost its bid to renew the contract to rival operator FirstGroup, it claimed the evaluation was flawed, called for a review, and started court proceedings over the government’s decision.

On 3rd October 2012, Government ministers announced that there were “significant technical flaws” in the way the risks for each bid were calculated, justified the legal case that Branson had brought against the decision.

The fun fighter

Richard Branson, for all his business is fun image is not a stranger to fighting his case through the courts. His success contributed to problems building up for First Group.

Difficulties pile up for First Group

This week [May 2013] First Group is shown to have encountered further difficulties after the hole in its financial plans resulting from the loss of the contract. The Guardian reports

FirstGroup, the train and bus operator, has turned to shareholders for £615m, scrapped a final dividend and parted company with its chairman in an effort to reduce its debts and avoid a credit rating downgrade.

The shares fell 30% after the cash call was announced alongside a sharp fall in full-year profits at the company which employs 120,000 people. It is struggling with almost £2bn of debt largely as a result of its acquisition of the US bus company Laidlaw in 2007. The company came under further pressure last year when the government announced in August that it had won a lucrative contract to run the west coast main line rail franchise between London and Scotland, only to scrap the decision in October citing flaws in the bidding process.

Shareholder activists

Other reports suggest that shareholders have played an important part in “encouraging ” the company to take major actions to deal with its problems.

FirstGroup’s problems finally caught up with it [on Monday 13th May 2013] . Its CEO, Tim O’Toole, had repeatedly denied that FirstGroup needed to raise capital. But, with the credit rating agencies threatening to downgrade the company’s debt to junk, it launched a humiliating three-for-two rights issue to raise £615m. It was priced at a 62 per cent discount to the prevailing share price. Shareholders were also introduced to a “new progressive dividend policy”, otherwise known as no final dividend this year and a slashed pay out from next. The shares fell 68.2 to 155.6p.
For this, someone had to pay the price. And, after 27 years at the wheel, it was Chairman Martin Gilbert, ushered off the clattering train by shareholders keen to make a clean break with the past. It was either him or O’Toole – and at least the American-born former London Underground boss had the excuse of only having been at the controls since April 2011.

A similar shareholder spring-cleaning is underway at J P Morgan.


Richard Branson Beats Government Bungling over the West Coast Rail Contract

October 3, 2012

220px-richardbranson.jpgRichard Branson called foul when his company Virgin Trains lost the franchise recently for the West Coast Main Line services from Scotland to London. His reaction was justified when the Department of Transport was forced to admit there had been flaws in the bidding process

Virgin Trains has run the West Coast Main Line since 1997. When it recently lost its bid to renew the contract to rival operator FirstGroup, it claimed the evaluation was flawed, called for a review, and started court proceedings over the government’s decision.

Flaws in the risk assessment

On 3rd October 2012, Government ministers announced that there were “significant technical flaws” in the way the risks for each bid were calculated, justified the legal case that Branson had brought against the decision.

Charismatic leadership is not quite dead

LWD has been cataloguing examples of the dark side of leadership and the retreat of the status of charismatic leaders. Richard Branson continues to stand as a contrary example through inspirational and dynamic efforts. When tested after a rare rail accident in February 2007 which left one passenger dead and several dozen injured, he acted decisively, effectively and with empathy for those affected.

To be continued

Acknowledgement

To Susan Moger for her rapid response in reporting this breaking news to LWD.