The AA’s largest shareholder has urged its fellow investors in the British roadside recovery group to reject a takeover bid from a consortium of private equity firms unless the offer is improved.
Albert Bridge Capital, a London-based hedge fund, wrote a letter to other shareholders at the weekend calling the offer from Warburg Pincus and TowerBrook Capital Partners “derisory” and one that “fundamentally undervalues the equity”.
The intervention sets up a public confrontation between Albert Bridge, which owns just under 20 per cent of the AA, and the group’s board and second-largest shareholder, US hedge fund Davidson Kempner, which back the 35p-a-share offer.
The deal, which requires 75 per cent shareholder support to go ahead, values the company’s equity at £219m.
“This initial 35p bid is insufficient, the terms of this offer are not fair or reasonable, and massive shareholder dilution does not need to be the only alternative to accepting this inadequate bid,” wrote Drew Dickson, chief investment officer at Albert Bridge.
“If the current bid level is rejected by the owners of the company, we hope and trust that management and their advisers will double down and arm themselves to defend vigorously the shareholders they represent.”
The AA has been struggling with a £2.6bn debt burden, on which the £128m annual interest payments alone amount to more than half of the company’s entire equity value.
Under the terms offered by Warburg Pincus and TowerBrook, the private equity groups would invest about £378m to cut the company’s debt burden by refinancing bonds that are due for repayment in 2022.
John Leach, chairman of the AA, said last week that the deal offered “certain cash value to the AA’s shareholders as well as a significant equity injection to reduce indebtedness”. He added that it was “in the best interests of the AA, its shareholders and wider stakeholders”.
Since the AA listed in 2014 its share price has fallen 86 per cent to 33.5p, having hit £4.19 in 2015.
The group’s debt burden dates to its previous period of private equity ownership under CVC and Permira. When it listed in 2014, it carried out an unconventional “accelerated IPO” that allowed it to come to the public markets with £3.4bn in debt, much higher than typical for a company of its size.
Mr Dickson’s letter added: “We encourage other shareholders, management and the board to share our confidence and demand that the consortium make an offer that is more palatable for current shareholders, yet still greatly rewarding for the consortium if they are successful.”
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