FirstGroup said late on Wednesday that it had received a “preliminary” and “highly conditional” indicative proposal from private equity firm Apollo Management, but that this was unanimously rejected.
“The board of FirstGroup has considered the proposal in detail and believes that it fundamentally undervalues the company and is opportunistic in nature,” it said in a statement issued following a spike in the share price.

The transport operator said there can be no certainty that any firm offer will be made nor as to the terms on which any firm offer might be made and that a further announcement will be made in due course if and when appropriate.

RBC Capital Markets said that if Apollo chooses to walk away, there are presently no other confirmed or reported offers and the risk is the shares could sink back below 90p pre-bid as there remain value risks in the company and fundamental questions over its inability to deliver on what is left of its last strategy.

“For the company to justify a higher share price on stand-alone basis, strategy and delivery thereon needs to improve (versus track record), in our view. For example, we find investors perplexed why FirstGroup has been embarking on debt refinancing without any guide of an updated strategy of what it wants to be. We find investors surprised that a deep re-think of its raison d'etre has not been used to guide the type and mix of capital structure it needs.”

RBC said that while Apollo's bid price is not known, a sufficient control premium, a competing break-up bid, or a self-breakup could see the company struggle to remain independent in its present form given the standalone equity track record.