Breakdown and roadside recovery service, the AA, looks like it’s heading for a takeover that will value the company at just 14 per cent of the company’s market capitalisation when it was floated back in 2014.
35p Per Share
The board of the AA is set to recommend a deal whereby Warburg and Pincus and Towerbrook Capital will pay just 35 pence per share for the historic firm.
That’s a long way from the 250 pence per share at which the AA floated its stock six years ago.
But although the overall £218m price seems like great value for a firm that was once worth £1.4 billion and counts three million members among its customer base, the new regime is taking on a company that is battling heavy debts.
Mounting Debt
In fact, the debt for the AA totals £2.65 billion and the takeover group is expected to spend £380 million on refinancing that debt.
The 35p figure will be a disappointment to some shareholders that had been hoping for more, and shares fell by 2 per cent on the news of the impending purchase.
But the expected offer is still significantly better – to the tune of around 40 per cent – than the recovery firm’s value back in the summer, before the news of a possible sale emerged.
AA Statement
In a statement, the AA said:
<em>The board believes that the company needs a more sustainable capital structure and requires a significant amount of additional new equity in order to reduce the group’s indebtedness and to fund future growth.</em>
<em>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.</em>
<em>Accordingly, the company is engaged in advanced discussions with the consortium in relation to the possible offer.</em>
In its results for the first half of 2020, published in September, the AA reported pre-tax profits of £26 million.
This is a drop of almost 40 per cent.