With debt repayment deadlines looming, the pressure is on for the AA to bring in cash © Richard Davies

The AA’s board has told two private equity groups it would be willing to accept a proposed 35p-a-share offer for the heavily indebted roadside recovery group, it said in a statement on Monday.

The group is in last-ditch talks with Warburg Pincus and TowerBrook Capital Partners over the terms of a possible deal, ahead of a Tuesday deadline set by the UK’s Takeover Panel. The proposed 35p offer is not binding.

Both sides were edging closer to an agreement on Monday night, and a recommended deal could be announced as early as Tuesday morning, although people close to the process cautioned that there was no certainty a formal offer would be agreed.

Under the proposed deal, the private equity groups would pay only slightly more than the company’s Friday closing price of 33p a share and would invest about £380m to cut the company’s debt burden by refinancing bonds that are due for repayment in 2022.

“Having considered carefully the viability of a range of alternative potential debt and equity refinancing options . . . [the AA’s board] has indicated to the consortium that it would be willing to recommend” such an offer, the AA’s statement said. “The company is engaged in advanced discussions with the consortium in relation to the possible offer.”

The AA has been speaking to potential bidders since the summer, as it seeks to bring in cash ahead of repayment deadlines on a large portion of its £2.6bn debt. 

An offer pitched only slightly above the AA’s 33p-a-share price stands to disappoint some AA shareholders, who have previously demanded a higher bid. 

Drew Dickson, the founder of Albert Bridge, the AA’s largest shareholder, told the Financial Times in August that an offer of £200m for the company’s equity would be a “somewhat opportunistic” move by private equity companies. An offer at the current share price would value the company’s equity only slightly higher, at £209m.

However, the bidders argue that their approach amounts to a rescue deal, a person close to the matter said on Sunday. About £913m of its debt falls due for repayment in the next two years. It made £107m in pre-tax profits in the year to January 31.

The deal would include the refinancing of £541m in bonds maturing in July 2022, and a further £372m in bonds maturing in January 2022, the AA’s statement said.

The private equity groups’ proposal would allow some AA shareholders to keep a stake in the company once it is taken private, the AA added. 

The AA, known for its yellow breakdown vans, is weighed down by debt, a legacy of previous private equity ownership. Its interest payments alone in the year to January totalled £128m, more than half of its market value.

One main sticking point in the talks has been the announcement by the UK’s Financial Conduct Authority in September of a new ban on charging existing insurance customers more than new clients for home and motor cover. That would hit the AA’s insurance business, which it operates alongside its roadside recovery operations. 

The AA’s shares were trading at 25p the day before the company announced in August that it was in talks with buyout groups.

Warburg Pincus and TowerBrook declined to comment. 

Get alerts on AA PLC when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article