AA shares fall as it considers private equity takeover

by Jonathan Adams
private equity

The group is reportedly being considered for a £218 million takeover proposal from TowerBrook Capital Partners and Warburg Pincus

Shares at roadside recovery firm AA plc were down almost 5% on Monday evening as Sky News reported that the company’s board is set to recommend a private equity takeover to help reduce its £2.6 billion debt mountain.

The motoring group is reportedly being considered for a £218 million takeover proposal from TowerBrook Capital Partners and Warburg Pincus, with both firms offering to pay 35p a share and invest an additional £380 million to put towards paying off AA’s outstanding debt.

To put that into context, when AA first floated the stock market in 2014, its shares stood at 250p and its total share value stood at about £1.4 billion.

According to UK takeover rules, a deal must be reached by 5pm on Tuesday. It is understood that Rick Haythornthwaite – former chairman of British Gas owner Centrica – will chair the AA following the acquisition. He also currently chairs Mastercard and the Creative Industries Federation.

The AA said in a statement to The Guardian: The board, having considered carefully the viability of a range of alternative potential debt and equity refinancing options together with its financial advisers, has indicated to the consortium that it would be willing to recommend a cash offer on the terms of the proposal. Accordingly, the company is engaged in advanced discussions with the consortium in relation to the possible offer.

Across its almost 3 million members, Basingstoke-based AA was launched in 1905 as the Automobile Association and once styled itself as the UK’s “fourth emergency service”. The firm boasts 3,000 patrol vehicles and primarily provides roadside assistance, as well as home and car insurance, and driving lessons.

AA shares were not impressed by the news on Monday, down 4.77% to 31.95p at the market’s close 23/11/2020, although a marked improvement from the company’s annual nadir of just 13.52p during February.

Over the course of the year, shares have taken a 28.46% blow, but recent gains in the past month sent prices up 31.83% again. Its P/E ratio stands at 2.38 and its dividend yield a modest 1.88%.

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