The $4.6 billion sale of First Student and First Transit including debt to Swedish private equity firm EQT Infrastructure has triggered a shareholder rebellion after Coast Capital, FirstGroup's top investor, opposed the deal.
"Unless the deal terms are materially improved upon, along with proposed use of proceeds, Coast Capital urges its fellow investors to vote against this destructive proposal," the activist investor, with a 14% stake in the British company, said in its latest statement.
Coast Capital also stepped up its criticism with a rebuttal of the arguments presented by FirstGroup on the deal's financial details and questioned whether the board was behaving responsibly towards its shareholders.
FirstGroup Chairman David Martin said the deal was credible and executable. "The process is entirely in line with market practice ... and the board fully complies with its fiduciary responsibilities at all times," he said in an emailed statement.
"Shareholders have waited long enough for change ... The transaction delivers the strategy we publicly set out," Martin added.
EQT also backed the deal, and said it was struck when debt and equity markets were trading at all-time highs, supporting robust valuations.
While EQT said it respected shareholders' right to decide for themselves, the group was "an ideal counterparty" for the deal.
Shares of FTSE 250-listed FirstGroup were more than 2% higher at 85.55 pence by 1545 GMT.
DEAL OR NO DEAL
Proxy advisory group and analysts are divided.
Glass Lewis has recommended that investors vote against the deal at a meeting set for Thursday.
However, ISS, IVIS and PIRC have advised shareholders to support the deal, FirstGroup said on Friday.
"We tend to agree with Coast when it says any sale or carve out of these U.S. businesses would be better done after a return to normalcy in the U.S.," Glass Lewis said.
On the other hand, ISS said in the absence of a competing bid, it proposed a "cautionary support" for the EQT offer, recognising that it was supported by "sound strategic rationale" and FirstGroup's "comprehensive" sale process.
Analysts at Peel Hunt, Jefferies, RBC Capital Markets and UBS have found merits in the deal.
It also faces opposition from Schroders, FirstGroup's second-largest shareholder. However, the deal is being supported by the company's third-largest shareholder, Columbia Threadneedle Investments.
(Reporting by Pushkala Aripaka and Shanima A in Bengaluru; Editing by Aditya Soni and Barbara Lewis)
By Pushkala Aripaka