On the go: A row has erupted between multinational transportation company FirstGroup and Coast Capital, its largest investor, over the former’s use of proceeds from an asset sale to plug a black hole in its pension fund.
As reported by Pensions Expert, the FirstGroup pension schemes stood to benefit from the £3.3bn sale of the company’s First Student and First Transit subsidiaries to private equity company EQT Infrastructure.
The vast majority of the proceeds of the sale were allocated to the pension schemes and to paying down company debt.
Some £2.1bn of the proceeds is to go towards addressing “long-standing liabilities”, while roughly £1.3bn is to go towards reducing indebtedness and derisking liabilities, such as the group’s legacy pension funds in North America.
The UK Bus and Group pension schemes will receive £336m, “enabling [a] move to a low-dependency funding position”.
The FirstGroup board entered into a memorandum of understanding with the trustee of the First UK Bus Pension Scheme and the FirstGroup Pension Scheme, as part of which £220m of the £336m has been allocated to the former.
However, the small portion of funds allocated to shareholder dividends — the existing plan would see shareholders receive just 10 per cent of the proceeds — has irked Coast Capital, which is seeking the support of other shareholders to oppose the arrangement, according to a report in The Telegraph.
A Coast Capital spokesperson said: “Coast confirms that it reserves its rights in respect of this proposed transaction. But any transaction, were this to command the support of Coast Capital, would need properly to respect and protect the legitimate interests of all FirstGroup’s stakeholders, including its investors, staff and pensioners.”
Coast’s opposition to the deal has in turn aroused the ire of Unite the union, which has long campaigned against what it calls “bandit capitalism”.
Unite said its members “are alarmed at the development as there has been growing concern at the size of the pension deficit, with fears that if action isn’t taken workers’ pensions could be placed in jeopardy”.
Bobby Morton, Unite’s national officer for passenger transport, said: “Coast Capital are trying to line their own pockets, while jeopardising the retirement income of our members.
“First Group are doing the right thing in acting to plug its pension fund deficit and they should not be blocked from taking this responsible action.”
He noted that Unite will be stepping up its campaign “to oppose any attempt to prevent the plugging of the pension back hole, especially in the run-up to FirstGroup’s annual meeting later this year”.
“Shareholders who support Coast Capital’s threat to workers’ pensions will be exposed for their greed and named and shamed,” Morton said.
In response, a Coast Capital spokesperson said: "We would like to make absolutely clear that we have never, at any time, put forward a proposal that would decrease contributions into the pensions plan, or to seek to reduce benefits to pensioners.
"In fact, more than two years ago we proposed that the company engage with a leading UK pension consultancy firm to structure great cash contributions and enhance the schemes for the immediate benefit of all stakeholders."
The spokesperson stated that Coast's opposition to the deal "is based on the transaction's very unattractive terms, and its crystallization of value destruction for all stakeholders, including pensioners".
The spokesperson added: "Coast manages capital on behalf of various investors including UK and US pension funds, and is a long-term investor in companies which we help to improve operationally. Coast Capital is always sensitive to the needs of all stakeholders, as well as the environmental impact of its invested companies.
"Reflecting this belief in shared incentives, Coast has invited Unite to discuss areas of mutual interest."
