May 8, 2018 / 12:05 PM / 6 months ago

RPT-UPDATE 2-U.S. fund Apollo walks away from FirstGroup offer

(Repeats to include reporting details)

LONDON, May 8 (Reuters) - U.S. private equity firm Apollo Global Management has dropped plans to make a takeover bid for British bus and rail operator FirstGroup, after having two approaches turned down.

Shares in Aberdeen-based FirstGroup, which has a market value of about 1.34 billion pounds ($1.81 billion), fell more than 10 percent on Tuesday following the news. They were down 7.1 percent at 102.6 pence at 1012 GMT.

Apollo did not say in its statement why it was abandoning plans to bid for FirstGroup, which operates Greyhound intercity coaches and school buses in North America as well as rail services in the United Kingdom. Under British takeover rules it had until May 9 to make a decision.

FirstGroup said in a statement that in recent weeks it had received “two preliminary and highly conditional indicative proposals from Apollo relating to a possible cash offer.”

“Having considered them in detail, the board of FirstGroup concluded that the proposals fundamentally undervalued the company,” it added, without giving details on the value of the offers.

Investors speculated in April, after FirstGroup first said it had turned down a proposal from Apollo, that the British group could be forced to break itself up or sell off parts of its business.

FirstGroup’s shares have slumped since the middle of last year and were hit again by a profit warning that saw them drop to 77 pence in March, their lowest since the company listed in 1995.

FirstGroup has also been targeted by Canadian activist investor West Face Capital, which disclosed a 5 percent stake in the business last June and now holds about 2.5 percent of the business, according to Thomson Reuters data.

West Face believes FirstGroup is undervalued by the stock market and its North American student bus division alone could be worth between 161 pence and 175 pence a share, according to a person with knowledge of the Canadian firm’s analysis.

West Face has presented its findings to about a third of FirstGroup’s shareholder base, the person added.

$1 = 0.7394 pounds Reporting by Clara Denina; additional reporting by Ben Martin and Maiya Keidan; Editing by Louise Heavens and Mark Potter

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