Windfall as AA sold to Centrica for pounds 1bn

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CENTRICA, THE supply arm of the former British Gas, is to buy the Automobile Association in a pounds 1.1bn deal, triggering windfall payments of around pounds 250 for the motoring organisation's 4.4 million full members.

The takeover, due to be announced this week, will also mean heavy job losses as the call-centres and administrative functions of the two businesses are put together.

However, Centrica is not planning to cut the number of front-line staff in either gas servicing or roadside breakdown. Gas engineers and AA patrol men will remain separate.

Analysts reckon the deal could produce savings of pounds 30m to pounds 40m - double the level currently being achieved by the AA - as duplication of back- office and information technology functions is removed.

The purchase of the AA will take Centrica closer to its goal of becoming a supplier of a wide range of services and products, in addition to gas and central heating maintenance. Centrica already offers the Goldfish credit card, home security, electrical appliance repairs and plumbing services.

The AA is the country's leading car-breakdown service, with 48 per cent of the market compared with 24 per cent for the RAC and 12 per cent for Green Flag.

But it is facing increasing competition from the likes of Direct Line, while the RAC is likely to become a more efficient business now that it has been taken over by Lex Service.

Centrica has 15,000 staff, of which 5,000 are service engineers, and 10 call centres around the county.

The AA has 12,000 staff, including 3,600 patrolmen and women, and five call-centres in Halesowen, Cheadle, Newcastle-upon-Tyne, Leeds and Maidstone.

Last year the company made a loss of pounds 21m on turnover of pounds 627m after pounds 41m of exceptional restructuring charges.

The management of the AA, led by its chief executive, John Maxwell, is expected to be kept on.

Although the AA has 9.5 million members in total, these include associate and corporate members.

Only the 4.4 million full members will be entitled to vote on the Centrica deal and collect their windfalls.

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