Activist hedge fund Coast Capital has issued a list of demands against First Group, including that it pull out of Britain's railways, split its UK and US assets and overhaul its board.
Coast, a top ten shareholder in First, has said the group should separate its US assets, which it claims have a "much higher independent valuation" than its UK assets, to generate £3bn in capital that could be used for reinvestment, debt reduction and pension top-ups.
Coast will pitch its five-point plan for a new strategy tomorrow.
In the US, First runs intercity coach services in North America, where it serves 43 states.
In the UK, it runs three UK rail franchises – Great Western Railway, South Western Railway and TransPennine Express – and is bidding for the West Coast Partnership franchise, which is due to be awarded in the summer.
Its only rival in the West Coast bid is a consortium led by state-owned Chinese firm Guangshen Railway Company, after the Department for Transport (DfT) made the controversial decision to disqualify Stagecoach from three rail franchises for refusing to share open-ended pension liabilities with the government.
The DfT is now being sued by Stagecoach over the decision, which saw it barred from the East Midlands, West Coast and South Eastern franchises.
The East Midlands franchise was awarded to Abellio, which will take over the franchise from Stagecoach in the summer.
Arriva has also joined the legal action, saying it was "seeking to obtain more information relating to how the bids for the East Midlands franchise were assessed".
Coast's demand that First Group withdraw from the UK rail industry could mean that a Chinese firm has control over the West Coast mainline, on which HS2 – Britain's proposed £56bn high speed railway – will run services.
Last week the US investment management firm held a general meeting in an attempt to take control of First's board of directors. It wants to remove six of the eleven current directors and replace them with seven of its nominees.
Coast Capital founding partner James Rasteh has said the existing leadership has "a track record of value destruction and under-performance".
Those it is targeting include chief executive Matthew Gregory and chairman Wolfhart Hauser. Former chief financial officer Gregory was appointed as chief executive in November after previous boss Tim O'Toole stood down in May 2018 after a £327m annual loss.
Rasteh told City A.M. that the current form of UK franchise contracts meant it was an "offensively destructive business to invest in".
He said there were numerous ways to lose money but "no way to make it". Up to £10m could be spent on franchise contracts that "actually generate a loss", he said, and "respected" operators such as Stagecoach and National Express have already pulled out.
"Meanwhile First Group continues to plunder capital," he added.
First Group declined to comment.