Roadside-breakdown service the AA (AA.) has been offered a low-ball buyout offer that the firm’s board seem to think is too good turn down.

The company has stalled in recent years as it struggles with massive debts, leaving its share price to coast over to the stock market’s hard shoulder.

Since Christmas 2015 the stock has lost almost 90% of its value prompting a private equity consortium to launch a takeover offer.

AA said today that it had received a possible takeover pitched at 35p a share from a group of investors that includes TowerBrook Capital Partners and Warburg Pincus International.

PREMIUM DISGUISES DISMAL PERFORMANCE

The buyers and the board are keen to highlight the offer’s rough 40% premium to AA’s share price since talks began on 3 August 2020 of 25p, but that will come as little consolation to investors that owned the stock pre-pandemic, with the shares trading at nearly 60p as recently as February.

The disappointment felt by investors at the paltry price offered was palpable on Monday, the stock sinking nearly 5% to 32.2p.

AA said talks were at an advanced stage and that it had indicated to the consortium that it would be willing to recommend a cash offer on the terms of the proposal.

SHOULD INVESTORS STAY OR SHOULD THEY GO?

The proposal also included the option for eligible AA shareholders to elect to receive unlisted securities in lieu of a cash payment.

That would give investors the chance to potentially recoup losses rather than crystalise them, although owning stock in a private vehicle is risky because they are usually difficult to sell.

The offer includes an intention from the consortium to invest approximately £380 million into the company to fund debt payment, supporting the refinancing of £541 million of existing bond debt including class B2 secured notes maturing in July 2022 and £372 million class A5 notes maturing in January 2022, the company said.

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Issue Date: 23 Nov 2020