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Sandell Fires New Shot at Greyhound's U.K. Owner

LONDON (The Deal) -- Activist investor Sandell Asset Management on Monday revived its dormant campaign at FirstGroup -- owner of Greyhound Lines in the U.S. -- by declaring it will vote against the bus and train operator's remuneration report and proposing a board candidate it claims would plug a gap in the leadership of its American operations.

FirstGroup has its annual shareholders' meeting on July 16. Tom Sandell, whose firm has a 3.1% FirstGroup stake, noted in an open letter to Chairman John McFarlane that the CEO pay package has ballooned by 209% over the past five years and that CEO Tim O'Toole is paid more than his peers, even though FirstGroup shares have underperformed them by 239% over that five-year period.

"We strongly believe that management's and shareholders' interests should be aligned and that properly structured rewards can incentivise management teams. We simply do not believe that a 94% rise in remuneration package is deserved for Mr. O'Toole's 2013/14 performance," wrote Tom Sandell.

Sandell in the letter also called on FirstGroup to install its own unidentified nominee as an independent non-executive director to plug what it claims is missing "sector expertise" with regards to FirstGroup's U.S. businesses. Sandell said the firm had other "highly qualified independent candidates" waiting in the wings should the first candidate be deemed unsuitable.

And he professed "significant concern" that McFarlane had apparently told the investor on a call that he wanted CEO O'Toole to meet with the mystery candidate before proposing him to the company's nominations committee.

"The explicit involvement of an executive director in the appointment process of a potential board member prior to the commencement of the nomination committee process appears to disregard the company's own published corporate governance policies, and this letter should be treated as Sandell's formal registration of a complaint in this regard," he wrote.

The statement ends a standoff between the two parties after FirstGroup in December rejected Sandell's demand that it spin off its U.S. school bus and public transport businesses to shareholders and sell its Greyhound Lines long-distance bus operation. In January Sandell urged FirstGroup to reconsider what it called a "premature rejection" of the plan in another open letter to chairman McFarlane.

London-based FirstGroup is sticking with its own turnaround program, which it initiated in May 2013 after angering investors by launching a 615 million pound ($1.05 billion) rights issue at a 62% discount to the prevailing price.

Martin Gilbert quit as chairman in the aftermath of the fundraising, triggering a six-month search for a replacement which ended with the December appointment of McFarlane, a hire which Sandell applauded.

FirstGroup shares were down 1.2 pence by mid-morning in London at 128.9 pence. FirstGroup has a market value of 1.55 billion pounds, compared with just under 2.2 billion pounds for peer Stagecoach Group plc.

On a one-year basis, Bloomberg data shows that FirstGroup has returned more than 33%, above the 24% return delivered by Stagecoach and the 20% at National Express Group plc, but below Go-Ahead Group plc's 70%.

FirstGroup had revenue of 6.7 billion pounds in the year ended March and had net debt of 1.3 billion pounds at that time. About 2.9 billion pounds of revenue came from the U.S., led by its struggling student bus operation. Its U.K. rail division accounted for almost 2.9 billion pounds of sales.

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