The Board of Centrica and the Committee of The Automobile Association (the "AA") are delighted to announce that they have reached agreement whereby Centrica will acquire the AA for £1.1 billion. As at 31 May 1999, the AA had net cash and cash equivalents of approximately £306 million, which will be assumed by Centrica.
The AA is the UK's leading motoring organisation, a leading UK independent car and home insurance intermediary and has an established financial services business. The combined group will be the UK's leading provider of energy and high quality services to consumers at home and on the road.
Centrica's and the AA's national service organisations have very similar core operations – marketing, call centres and work management systems - supporting a field-based workforce of highly skilled, trusted engineers and patrols who deliver a quality, reliable maintenance and repair service under the respected brand names of British Gas and the AA.
The transaction, which is subject to the satisfaction of various conditions including the approval of the voting members of the AA, is expected to be completed in the fourth quarter of 1999. It is currently estimated that each eligible member will receive a cash payment of approximately £240.
Centrica will invest in and develop the liveried roadside recovery business currently operated by the AA with a view to maintaining current service standards and customer satisfaction levels. Centrica will also preserve the AA's role as an independent voice for the interests of motorists.
The Board of Centrica and the Committee of the AA believe that bringing together these complementary core operations and skills will deliver improved service. The combined business has the scope to develop products more effectively and the opportunity to achieve greater efficiencies and cost savings through synergies.
The transaction will:
combine two leading national service providers, committed to excellent customer service and to providing peace of mind and convenience for consumers at home and on the road;
create a group offering a unique range of products and services;
expand Centrica's financial services business, by integrating its popular Goldfish products with the successful and established insurance and financial services activities of the AA; and
achieve efficiency gains across the combined businesses, adding Centrica's experience of improving its British Gas Services operations to the on-going restructuring plan of the AA. Synergy benefits, together with efficiency gains already identified by the AA, are expected to enhance the AA's operating profit by at least £85 million per annum before tax by 2002 with total one-off exceptional charges of an estimated £95 million taken in 1999 and 2000.
Centrica expects the acquisition to be earnings enhancing in 2001, before the amortisation of goodwill.
Centrica will fund the acquisition from existing cash resources and debt facilities.
Sir Michael Perry, Chairman of Centrica, commented:
"We are excited at the opportunity which the AA gives us to take a major step towards delivery of our service provider strategy. The AA has become a great British organisation because of the excellence of its core businesses and the strength of a brand associated with quality, reliability and security which Centrica will seek to protect. I am delighted that Sir Brian Shaw, the Chairman of the Committee of the AA, has agreed to join the Board of Centrica as a non-executive director on completion of the transaction. He will have specific responsibility for chairing a motoring policy sub-committee of the Board."
Roy Gardner, Chief Executive of Centrica, commented:
"We believe the acquisition offers clear benefits to both organisations. It provides an excellent strategic fit with the range of products and services currently provided by Centrica. The shareholders of Centrica stand to gain from substantial progression towards our goal of becoming a leading provider of high quality consumer services. The members of the AA will benefit from our commitment to invest in and develop the liveried roadside recovery business currently operated by the AA with a view to maintaining current service standards and customer satisfaction levels. We will also continue the AA's role as an independent voice for the interests of motorists. Centrica anticipates significant efficiencies through combining the operations of the two businesses. All our customers, existing and new, will benefit from the wider range of products and services."
Sir Brian Shaw, the Chairman of the Committee of the AA, commented:
"The Committee is delighted to have reached agreement with Centrica and has no hesitation in unanimously recommending our members to support these proposals.
Whilst we have a leading market position now, changes in the roadside services market mean that the interests of the AA, its members, customers and staff, will best be served by being part of a larger group with a commitment to service standards and the resources necessary to maximise the potential of our organisation.
Centrica's emphasis on service and its commitment to maintain the AA's position in the UK roadside services market make it an ideal custodian of the business. We share Centrica's belief in the benefits that should arise from the combination of the two organisations, and consider that this agreement reflects full and fair value for the AA."