CVC hauled before Treasury following AA criticism(3)

CVC Capital Partners has become the latest private equity firm to be called before the UK Treasury Select Committee, which is due to meet for a third time next Tuesday to discuss the industry. The summons comes in the wake of its controversial ownership of the AA, which this week completed a £6 billion merger with Saga.

CVC Capital Partners has been called to appear at the Treasury Select Committee hearing into private equity next Tuesday, following sustained trade union criticism of its ownership of the AA, a vehicle breakdown service that was recently merged with Charterhouse Capital Partners’ over-50s insurance and holiday business Saga.

Jonathan Feuer or Mike Smith from CVC will join David Blitzer from The Blackstone Group, Jon Moulton from Alchemy Partners, and Peter Taylor from Duke Street Capital to give evidence to the committee of MPs. The spokesman said MP Angela Eagle was particularly keen to call Duke Street Capital before the committee, because of her current disagreement with the firm over job cuts at a Burton’s biscuit factory in her Wallasey constituency.

CVC and Permira have owned AA since 1994, although the latter has been the focus of union opposition to date, culminating in Permira boss Damon Buffini being summoned to appear in front of the Select Committee last week. CVC has so far largely escaped attention, but it has been thrust back into the spotlight with this week’s £6.2 billion ($12.4 billion, €9.2 billion) merger of the AA with Saga.

The GMB union, which has led the opposition, has now written a letter to John McFall, chair of the Treasury Committee calling for the three buyout firms to submit fresh evidence to the committee about the merger. The union has strongly criticised the £4.8 billion of debt employed in the deal.

GMB general secretary Paul Kenny said in the letter: “It is apparent to us that Buffini must have been aware of this very lucrative merger deal when he gave his evidence and that the deal itself provides a very instructive opportunity to evaluate the negative impact of the private equity industry.”

The buyout firms, who are providing a total of £1.4 billion of equity for the deal – with a further £86 million coming from Saga management and staff, according to a company spokesperson – will each take two seats on the nine-strong board of Saga. Chief executive Andrew Goodsell and finance director Stuart Howard will each take a seat, with the remaining place likely to be occupied by someone from the AA, according to the UK-based Financial Times newspaper.  

However, the three firms have reportedly already had their first disagreement, over the level of financial information released about the deal. Permira was hoping for greater disclosure, but the move was opposed by Charterhouse and CVC, according to the FT. Permira declined to comment.

Union ire may not be confined to this particular deal. The FT reports that incoming prime minister Gordon Brown is planning to appoint Buffini to a “Business Council for Britain”, a new body designed to advise government on policy affecting business. It would follow his earlier appointment to the National Council for Educational Excellence, a skills body.