Bids for the London-listed company have been extended until 29 September, giving firms another month to make a play for AA. Last month the company said it had received three offers. The three bidders are Platinum Equity, Warburg Pincus International and a joint effort from TowerBrook Capital Partners and the European arm of Centerbridge Partners.
The back story. The US-based private equity firms vying to buy AA for cash have a chance at rescuing a storied and iconic British brand with over 15 million members. This won’t be AA’s first brush with private equity: the company was sold in 2004 to CVC and Permira, who then loaded it with debt before listing the company publicly in 2014.
AA hasn’t made much progress in reducing its heavy debt load since making it a priority in the IPO. Net debt is only down to £2.65bn from the £3bn when it floated six years ago. £913m of its debt is due for repayment within the next two years, and the company needs to refinance fast.
When the company confirmed on 4 August that it was in talks with private equity groups, it also noted that it was assessing a range of other potential refinancing options, including raising fresh equity, which is still on the table.
What’s new. AA extended the offer deadline and, under UK takeover rules, bidders must now make an offer, or the firm intention of one, by 5pm on 29 September. Shares in AA were down more than 9% in afternoon London trading on 1 September but are still 28% higher than before the bids were announced in August. Reports that Warburg Pincus may partner with Centerbridge and Towerbrook, taking the number of bidders from three to two, seem to have dampened investors’ hopes for an all-out bidding war.
Looking ahead. Needless to say, AA needs a buyer with deep pockets and dedication to reducing its debt. After all, AA is an attractive buy, despite the anchor of debt around its neck. Though the coronavirus pandemic has impacted immediate earnings, AA is a resilient company with an ability to churn out cash. In the year to January 2020 it generated £83m in free cash flow despite paying out £128m in interest payments — and the company’s market cap stands at only £214m.
Investors may not get the competitive bidding war they were hoping for but a deal at the end of the month should help the stock higher.
Source: Barron’s
