Britain's FirstGroup rejects Apollo takeover approach

(Reuters) - British bus and rail operator FirstGroup FGP.L has rejected a takeover approach from U.S. private equity firm Apollo Global Management APO.N, becoming the latest company to be swept up by a wave of bids in the UK.

Aberdeen-based FirstGroup said late on Wednesday that its board had unanimously rejected a cash proposal from Apollo. The FTSE 250-listed group said it was disclosing Apollo’s bid after its shares leapt 7.4 percent to close at 101.8 pence.

“The board of FirstGroup has considered the proposal in detail and believes that it fundamentally undervalues the company and is opportunistic in nature,” FirstGroup said/

Under British rules, Apollo now has until May 9 to make a firm offer or walk away from the business, which has a market value of about 1.2 billion pounds ($1.70 billion). The company operates Greyhound intercity coaches and school buses in North America and rail services in the UK.

It comes amid a boom in mergers and acquisitions in Britain that saw the value of deal-making reach $164.3 billion during the first quarter of the year, the highest level since 2007, according to Thomson Reuters data.

Economic growth and the availability of cheap debt to finance deals have contributed to the M&A surge, which has included Melrose’s 8 billion-pound hostile takeover of engineer GKN and Comcast’s 22.1 billion-pound bid for broadcaster Sky.

Apollo’s approach comes after FirstGroup was left vulnerable to a bid by a slump in its share price, which dropped as low as 77 pence last month from 153 pence in May 2017, Thomson Reuters data show.

The stock fell after the company issued a profit warning on Feb. 21, when it cautioned that snowstorms had hit it North American businesses and that its Greyhound operations were facing “intensifying” competition from airlines.

FirstGroup has also been targeted by Canadian activist investor West Face Capital, which disclosed a 5 percent stake in the business last June.

The company has not paid a dividend to shareholders since it raised 615 million pounds from a rights issue in 2013 to pay down debt, after it lost a lucrative deal to run Britain’s West Coast rail franchise.

Apollo did not return requests for comment.

Reporting by Ben Martin in London and Justin George Varghese in Bengaluru, editing by David Goodman, Larry King