Shortlist of bids for RAC motoring arm

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THE RAC said yesterday that it had drawn up a shortlist of six potential bidders for its roadside breakdown arm as it disclosed that the failed pounds 450m offer for the business from Cendant of the United States last year had resulted in a one-off charge of pounds 30m.

A decision on whether RAC Motoring Services, which has 5.5 million members, will be sold to a trade buyer or floated is due to be made by next month. The RAC hopes to complete the disposal by the summer.

The sale of the business to Cendant would have netted windfalls of pounds 35,000 each for the RAC's 12,000 full members but the deal was blocked in February by the Monopolies and Mergers Commission.

The new shortlist of bidders is thought to include Ford, Centrica, the trading arm of the former British Gas, and Lex Service. Other financial buyers such as Cinven are also understood to have shown an interest.

The RAC's 1998 results show exceptional charges last year of pounds 29.9m relating to the demerger of RAC Motoring Services from the Royal Automobile Club. The biggest item was a one-off donation of pounds 18.5m to the RAC Foundation to fund its duties under the royal charter, such as promotion of road safety. The remaining pounds 11.4m was split between restructuring costs, advisory fees and legal charges following court challenges brought by overseas members against the Cendant sale.

Neil Johnson, the RAC's chief executive, said that it still had "an entirely open mind" about whether to go for a flotation or a trade sale. Mr Johnson, the RAC's chairman, Sir Michael Angus, and the organisation's financial advisers, Dresdner Kleinwort Benson, will decide between the two options at the end of this month. A spokesman said it was too early to say whether the 5.5 million associate members would receive any shares should the RAC decide to float the business. "But we are well aware of the importance of our customer base," he added.

Pre-tax profits last year before exceptional items rose by 45 per cent from pounds 17m to pounds 24.7m on sales up from pounds 271m to pounds 311m. About 20 per cent of the profit increase was contributed by the British School of Motoring, which the RAC acquired towards the end of 1997.

The RAC is planning further cost-cutting measures this year through the integration of BSM into its motoring services division and an expansion of its joint venture launched in January with Trafficmaster and Cellnet to provide in-car traffic information to drivers.