AA reaches the end of the public road in private equity takeover

The “debt-laden” AA is likely to be taken back into private-equity ownership, says Julia Kollewe in The Guardian . The motoring group has indicated that it is inclined to recommend a £218m takeover proposal from TowerBrook Capital Partners and Warburg Pincus.

The deal would involve the two private-equity groups paying 35p a share while investing £380m to help reduce its huge debt pile of £2.6bn, £913m of which is due to mature in the next 18 months.

The deal would also see Rick Haythornthwaite, a former chairman of British Gas owner Centrica, becoming AA’s chairman. The offer price of 35p, will “disappoint” shareholders given that it is pitched “only slightly above” the AA’s 33p-a-share price, says Kaye Wiggins and Daniel Thomas in the Financial Times.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Still, it is a lot more than the 25p the shares were trading at in August before the AA announced that it was in talks with buyout groups. Shareholders who bought into AA when it was first floated in 2014 at 250p and held on may be angry that they stand to lose 85% of their investment, says Ben Marlow in The Daily Telegraph.

However, “one wonders what they were doing”, buying shares when the company “careered” onto the stockmarket six years ago. After all, it arrived “with £3bn of borrowings”, the result of a pre-float refinancing that “handed its owners a £2.6bn dividend just as they were preparing to leap out of the driver’s seat”. This meant that the management was forced to focus on cost-cutting at a company “already starved of investment”.