Yahoo Finance AA shares dive as breakdown group close to agreeing takeover offer
Shares in the AA (AA.L) dropped sharply on Monday after the breakdown group confirmed it was close to accepting a takeover offer.
The company confirmed in a statement to investors that it had received a 35p per share offer for the whole company from TowerBrook Capital Partners (UK) and Warburg Pincus International.
It said its board “would be willing to recommend a cash offer” on the terms proposed, and that the company was in “advanced discussions” with the consortium.
“The board believes that the company needs a more sustainable capital structure and requires a significant amount of additional new equity in order to reduce the group's indebtedness and to fund future growth,” it said.
“The board has for some time been reviewing a range of potential refinancing options, including the possibility of raising new equity.”
Shares in the AA dropped more than 8% as markets opened on the London Stock Exchange, but regained some initial losses and were around 2.7% lower as investors’ concerns appeared to ease in mid-morning trading.
After an initial surge in its first year as a listed company from 2014, the company’s stock has been spiralling downwards from a high of around 419.25p in March 2015 to under 35p today.
The proposal would see the consortium invest around £380m in the company to help it reduce its debt and refinance £913m of notes.
The offer marks a premium of around 40% on the AA’s 23.3p average share price in the month to August. Eligible AA shareholders will be able to swap their shares for unlisted securities rather than cash, as long as their combined stake is no more than 16% of the acquiring group’s equity.
READ MORE: Oxford-AstraZeneca vaccine shows over 70% efficacy
The AA said the bidders had to confirm their firm intention either way by 5pm on Tuesday in line with takeover rules.
The company had posted a 2.6% slide in revenue to £478m in its interim first-half results in September, and saw its pretax profits slide 38.1% to £26m.
Reduced workloads as the pandemic hit road travel saw the group cut costs, including scrapping pay rises, freezing hiring, use of the government furlough scheme and a 15% pay cut for its board.
The document also described debt reduction as the group’s “key priority.”
The group, founded as the Automobile Association in 1905, had 966,000 policies at the end of July.
WATCH: Are low-traffic neighbourhoods a good idea?
