AA's pounds 1.1bn takeover puts 2,500 jobs at risk

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AS MANY as 2,500 jobs are likely to be shed following Centrica's pounds 1.1bn takeover of the Automobile Association, analysts warned yesterday.

Centrica, which trades as British Gas, would not put a figure on the level of cutbacks but said it had identified at least pounds 85m of cost savings at the AA and admitted that some job losses were inevitable.

Roy Gardner, chief executive of Centrica, said there was no question of cutting into the frontline staff of the AA, which has 3,600 roadside patrolmen, or expecting gas fitters to start repairing cars.

But analysts estimated that if the AA is to be made as efficient as Centrica then 30 per cent of the 8,000 staff in its roadside services division would have to go. Last year the AA axed 1,300 staff, mainly as a result of closing its chain of shops.

The bulk of the job losses will be among back office and call centre staff with casual and contract employees the first to go. Centrica has 11 call centres while the AA is in the process of slimming down its call centres from eight to three.

Unions gave the deal a cautious welcome but the GMB, which has 8,000 members in both Centrica and the AA, said: "Our AA members are clearly concerned about terms and conditions and job security."

Centrica hopes to complete the deal in the fourth quarter of the year and send out windfall payments of pounds 240 each to the AA's 4.6 million full members in October.

Mr Gardner said the deal would be earnings enhancing in 2001, and by 2002 the AA should be generating profits of pounds 100m compared with an underlying operating profit of pounds 16m last year.

In addition to pounds 65m of cost saving measures already planned by the AA, Centrica has identified a further pounds 30m of cost savings and revenue improvements. Set against this it will increase spending by pounds 10m a year to improve the AA's services.

Centrica will take a pounds 95m charge this year and next year to pay for the rationalisation measures. About pounds 30m of this will be redundancy costs and pounds 20m will be investment on IT systems. In addition there will be bid costs of pounds 10m and pounds 20m for property rationalisation and a reduction in the number of AA call centres. There is likely to be a goodwill charge of pounds 1bn, amortised at the rate of pounds 50m over 20 years.

Although there has been some criticism of the price paid by Centrica and its lack of experience in car breakdown, analysts pointed out that taking into account the pounds 306m of cash in the AA's accounts, the amount paid per full member was comparable with Lex Service's pounds 437m takeover of the RAC.

Centrica has already moved into credit cards, home security, plumbing and domestic appliance repair and Mr Gardner said that the AA takeover would provide the platform to expand in Europe and offer motor finance services such as personal leasing. Its next move is expected to be into telephone services.

Mr Gardner said Centrica would probably not bid for National Power's Drax power station.