FirstGroup shares slump by a fifth as troubled bus and train operator announces £615m fund-raising bid

Chairman steps down after 27 years in the driving seat

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The Independent Online

The struggling bus and train operator FirstGroup tapped investors for £615 million to cut debts and axed the dividend as profits slumped.

The chairman Martin Gilbert stepped down as chairman after leading the firm for 27 years, as shares slid 22 per cent on news of the deep-discounted rights issue, which comes at a 62 per cent discount to Friday's closing price.

First, labouring under £2 billion debts following its 2007 acquisition of US bus company Laidlaw, needs the funds to avoid its debts being slashed to junk status and incurring an extra £50 million a year in financing costs by 2016.

Its plans to turn around the business were also hit by the West Coast mainline fiasco.

The firm is paying no final dividend for the year to March - where pre-tax profits fell 37 per cent to £172.4 million - and has also scrapped the interim payout for the current financial year.

Gilbert, who earned £191,000 as chairman of First and has led the business since 1995. But his extensive outside commitments -  as founder and chief executive of Aberdeen Asset Management and on the board of BSkyB - have reportedly raised eyebrows among some leading shareholders as the company struggles.

First's bus business bore the brunt of rising fuel costs and subsidy cuts as operating profits tumbled by a third to £90.7 million. The company is pulling out of the capital's regulated bus market and selling bus depots to concentrate on bus markets elsewhere in the country.

Chief executive Tim O'Toole said the subsidy cuts had cost the business more than £20 million a year. He said "Our concern right now is less the economy and more government policy. It is critical if the government is going to have a thriving economy it recognises that two-thirds of people who access public transport are accessing a bus."

Investec's John Lawson said: "Today's news should clear the air and reduce the group's debt once and for all, so should help the stock in the longer-term."