AA to split from Saga as huge pre-crash takeover unravels
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Tuesday 18 June 2013
The AA is to split from its silver-haired sister company Saga in a multibillion-pound deal that undoes one of the biggest corporate takeovers of the pre-crash credit boom.
The historic roadside assistance firm was bolted together with the pensioners' travel giant in a 2007 merger valuing the group at £6.2bn. That deal was funded by cheap credit and lumbered the company with debts of £4.1bn. Now a deal has been done that will refinance that debt on a longer-term, and cheaper, rate of interest.
Most of the refinancing will be through a secured bond issue that will free the private-equity backers of the business to split the two up again. It is expected that Saga will be floated on the stock market and the AA will be sold separately.
When that is eventually achieved, it will mark an exit from the businesses for the private-equity giants Charterhouse, CVC and Permira. At the time of the deal, the super-low interest rates available for buyout firms allowed them to cash in with a £2bn dividend. Ironically, the return of super-low interest rates on the bond markets means they have been able to pull off last night's refinancing. Thanks to the low central bank base rates, companies have been able to tempt investors to lend to them at extremely low rates of interest.
For critics of the culture of corporate takeovers that presided in the City, the AA's journey since the 1990s has been an inglorious one.
Its members eschewed nearly 100 years of mutual ownership in 1999 and sold the organisation. It was bought by Centrica for £1.1bn before being sold on in 2004 to the private-equity firms for £1.75bn.
Acromas, the name given to the merged Saga-AA business, is one of the biggest privately owned businesses in the country.
Similar giant loans from the pre-credit crisis days have also been refinanced of late, including the telecoms infrastructure group Arqiva and the shopping centres operator Intu.
However, there are growing concerns in the market that the new headiness of the bond markets could come juddering to an end.
Concerns that the US Federal Reserve will stop buying bonds under its QE programme led to a sharp increase in bond yields in recent weeks until the central bank let it be known last Thursday that any pullback from the asset-buying programme would be gradual.
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