Fears grow for potential breakdown of AA shares

Strict takeover rules dictate the AA must update investors on Tuesday on negotiations

The AA will this week update investors on a potential takeover swoop as fears grow that the breakdown firm’s shares could be worth next to nothing.

The former FTSE 250 company stunned the City at the start of the month by confirming it had opened talks with a trio of private equity investors. Strict takeover rules dictate the AA must update investors on Tuesday on negotiations. The City will be hunting for clues in the AA’s statement after a period of comparative silence.

Centerbridge Partners and TowerBrook Capital, Platinum and Warburg Pincus remain in talks with the company over a potential debt refinancing and buyout. After floating in 2014, the AA has struggled to pay down loans and is laden with almost £2.7bn of net debt.

US buyout giant Apollo is believed to be in discussions with the company over refinancing about £570m of bonds that are due to mature in 2022. The AA is yet to confirm Apollo’s interest.

Albert Bridge Capital, the AA’s 
biggest shareholder, has criticised the confirmed approaches as “opportunistic”. But analysts from stock broker Jefferies last week dampened speculation that a 40p-a-share offer, equivalent to roughly £250m, could be lodged.

Suggesting a 5p-a-share target price, Jefferies’ Will Kirkness wrote: “In a non-competitive process we would expect an interested party to avoid paying anything for the equity. With three or four possible bidders, the competitive tension may drive the price up.”

Another analyst said that suitors were likely to target the bonds before forcing through a debt-for-equity swap. “If you own the debt, you will own the business before too long,” the person said. “You only need to buy the equity if that is your only route and someone is to outbid you.”

M&A regulations impose a so-called “put-up-or-shut-up” deadline 28 days after lodging initial interest. It forces suitors into either making a binding 
offer or walking away. The deadline can be extended with consent of the Takeover Panel, the City regulator.

The AA declined to comment.