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Monday, July 5, 1999 Published at 13:44 GMT 14:44 UK


Business: The Company File

Power firm buys AA

Millions of AA members will receive windfall payments of £240

British gas supply company Centrica has confirmed that it is buying the UK's leading roadside breakdown organisation, the Automobile Association.


The BBC's Greg Wood: "One of life's more unusual matches"
Centrica - which operates the British Gas and Scottish Gas brands - said two weeks ago that it was in talks with the AA and has now announced a £1.1bn ($1.74bn) buyout.

Legal details connected with demutualisation of the AA are thought to have taken longer than expected, delaying the announcement.


[ image:  ]
If the deal is approved by the AA's four-and-a-half million owner-members, they stand to gain windfall payments of £240 each.

Another five-million members who are covered by manufacturer or company fleet schemes will not receive any money.

The two groups said the deal - which is expected to be completed in the last quarter of the year - would create savings of at least £85m a year by 2002. The AA's pre-tax profit in 1998 was £19.7m on a turnover of £627.3m.

The AA's financial services and insurance business will be incorporated into Centrica's own.

Some staffing 'overlap'


[ image: Gas supplier Centrica turns up the heat on its competitors]
Gas supplier Centrica turns up the heat on its competitors
Roy Gardner, chief executive of Centrica, said: "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 and develop the liveried roadside recovery business currently operated by the AA."

He also said there were no plans to reduce the roadside recovery workforce, but that there were "overlaps" in jobs between Centrica and the rest of the AA's 12,000 employees.

Bold move

Sir Brian Shaw, chairman of the committee of the AA, said the sale to Centrica was necessary because of a changing market.

"Whilst we have a leading market position now, changes to the roadside services market mean that the interests of the AA, its members, customers and staff will be best served by being part of a larger group," he said.

Acquiring the AA - which has 48% share of the UK roadside breakdown market - is Centrica's boldest step yet in its quest to widen the home-related consumer services it offers its 16.7m UK customers.

Centrica has already introduced its huge customer base to Goldfish credit cards, home insurance and plumbing services. It has also won the largest influx of new customers in the recently liberalised electricity supply markets.

RAC also bought out

In April, the car leasing company, Lex Services, bought the UK breakdown industry's number two, the RAC, for £437m ($690m).

The deal gave the RAC's 12,000 full members windfall payments of more than £34,000 each.

The RAC is about half the size of the AA in terms of revenue and market share.

In another venture, Centrica is said to be close to a deal with telecoms company Energis to launch a telephone service.

If reports are accurate, the telephone service would use BT's local lines and Energis's trunk network, offering calls at a substantial discount.

In 1998, Centrica made a pre-tax profit of £208m on a turnover of £7.48bn.

After the early morning announcement that it was taking over the AA, Centrica's share price was 2 pence higher by 1400 BST at 151p.



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The Company File Contents


Relevant Stories

24 Jun 99 | The Company File
New hope of windfall for AA members

30 Apr 99 | The Company File
Windfalls for RAC members and staff





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