AA gets a puncture as shares fall below offer price on debut

The Times, Patrick Hosking and Susan Thompson, 24 June 2014.

The AA made a disappointing share market debut yesterday as its stock, spluttered, coughed and promptly went into reverse.

Investors who bought £1.385 billion worth of shares in the roadside recovery group were nursing immediate paper losses of £97 million as the shares ended the first day of conditional dealings at 232p, 7 per cent below the 250p purchase price.

However, demand for the shares was described by the company as “strong” and enabled the previous owner, the private equity-backed Acromas, to offload its entire holding in the company.

Acromas suffered a setback last month when it was unable to sell its shares in Saga, the over-50s insurer, because of weak institutional investor appetite for the initial public offering.

Bob Mackenzie, the former Green Flag chief and newly installed executive chairman of AA, put a brave face on events. “We’re more interested in what happens when unconditional trading begins on Thursday,” he said.

Advisers to the AA suggested that the falling price could be down to short-sellers betting that it would suffer the same fate as so many other recent flotations and drop to a discount

In an unusual two-step buy-in and float process, £930 million of AA shares were sold this month to a handful of cornerstone investors backing a new management team led by Mr Mackenzie, with the balance placed subsequently with other investors. Neil Woodford, the fund manager who recently left Invesco to set up his own business, emerged as a leading investor, buying 6.4 per cent of the company, and joining other cornerstone shareholders such as Aviva, Blackrock and L&G. The AA, which operates the BSM driving school and a motor insurance division as well as its 3,000-strong fleet of breakdown vehicles, raised £185 million by selling 85 million of newly issued shares.

The cash will be used to reduce some of the most expensive borrowings in its debt mountain, cutting it from £3.1 billion to £2.9 billion.

Cenkos, the sole co-ordinator, scooped up to £33.2 million in placing fees, £10 million of it paid in AA shares.


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