AA and Saga in £6bn merger(2)

Travel and insurance group Saga is to merge with the AA, the vehicle breakdown service owned by Permira and CVC Capital Partners that has been at the heart of the recent controversy over private equity. The move has provoked further union anger.

Buyout firms Permira and CVC Capital Partners have combined UK motoring company the Automobile Association with Charterhouse Capital Partners’ UK over-50s travel and insurance group Saga, in a deal that values the combined group at £6.15 billion ($12.3 billion, €9.1 billion).

The deal values the AA at £3.35 billion and Saga at £2.8 billion. CVC and Permira will take a combined 42.5 percent stake in the company, with Charterhouse taking 37.5 percent and the companies’ management and staff retaining the other 20 percent. Saga chief executive Andrew Goodsell will run the combined entity, while AA chief executive Tim Parker will leave the group.

The two firms’ ownership of the AA has provoked the wrath of the GMB trade union, which has accused Permira and CVC of “asset stripping” the company, by cutting 3500 jobs and loading the company with debt.  The union targeted its complaints at Permira head Damon Buffini, and the subsequent confrontation has since escalated into a general row about the role of private equity in the UK economy.

A source close to the AA said the reduction in headcount had not been through wide-ranging forced redundancies.  He admitted that the number of patrols had been reduced by 500, after the buyout firms had run a performance review with full union co-operation. However, he said, some of the patrols that had failed to meet requirements had then refused to undertake extra training, opting instead to take  redundancy packages.

Saga has been a more straightforward private equity success story. Charterhouse bought the business for about £1.35 billion in October 2004, contributing an equity cheque of about £500 million. It recouped this investment after a refinancing in 2006, while retaining an 80 percent stake.

A source close to Saga said: “Saga has done incredibly well under private equity ownership with a 28 percent increase of number of people under employment. It’s an excellent deal for both parties after negotiations which began end of April. Saga has seen 80 percent top line growth and these are two strong brands with tremendous potential.”

However, the unions were predictably less positive about the deal. Paul Maloney, from the GMB union, said: “It is the beginning of the end of the AA. It is the worst possible move that could have happened. We’ve called them casino capitalists and we’ve been proved right.” He believes the companies will close call centres and dismiss employees at the AA, transferring much of the work to Saga.

The timing of the merger has raised eyebrows as it comes just a few days after a hearing of the UK Treasury Select Committee into private equity, where Buffini and the GMB were both called to give evidence.

Maloney insisted: “They’ve asset stripped it, they’ve stuck two fingers up to the Commons. It is a sad day for competitiveness and it’s a sad day for British business as they’ve walked away with millions having left a family name in this state.”