Mark Kleinman: AA float needs smart pricing to avoid breakdown
Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his weekly Morning Wire column
Here’s a candidate for toughest IPO mandate in the City: return the venerable AA, the UK’s biggest breakdown recovery service, to the public markets roughly five years after it was taken private for a fraction of its 2014 IPO valuation.
Such a move is now in the mind’s eye of the AA’s triumvirate of private equity backers: Stonepeak Partners, Towerbrook Capital Partners and Warburg Pincus.
Having brought in the first of the trio in a deal valuing the company at £4bn (comprising debt and equity) last year, the latter two are starting to plot an exit route. To that end, as I reported a few days ago, they are lining up JP Morgan and Rothschild to advise them on strategic options for a company which has roughly 16m customers across Britain.
A public listing is one of the possibilities, although I suspect the AA’s buyout backers would prefer the more substantial immediate liquidity generated by an outright sale.
Nevertheless, an IPO track would be a useful option for preserving competitive tension in an exit process. Fund managers with medium-term memories will be understandably wary, however. The AA was taken private by Towerbrook and Warburg Pincus for a price roughly 85% lower than the one at which it floated in 2014.
Since then, it has been steadily deleveraging, reducing net debt to just under £2bn at the date of its last financial results reported to bondholders. That will need to come down further as a multiple of the company’s earnings if portfolio managers are to be convinced of the investment case after seeing it stranded as a highly geared zombie company for years.
Any form of deal is unlikely to take place until next year at the earliest, but the AA’s improving profitability and growing customer base make a clearer case for investors to back a conservatively priced listing. Innovation in the range of services it provides, particularly for drivers of electric vehicles, provide another long-term potential growth driver. Priced to go, an AA IPO could look like an attractive bet for public investors – but they’re unlikely to swallow any float which risks resembling previous breakdowns.
Intertek pulls pay vote – but will test investor patience again next year
That’s one way to avoid an embarrassing investor revolt. Intertek, the FTSE-100 testing and inspection group, has come up with a novel means of avoiding defeat in a shareholder vote – by scrapping the ballot before its result was heard.
The company, which has a market capitalisation of about £8bn, was keen to hand Andre Lacroix, its chief executive, a bumper new pay package which would have seen his maximum long-term incentive opportunity double from three times his base salary to six times.
It was the centrepiece of a revamped pay policy drawn up by Intertek’s remuneration committee, and which would have been the subject of a binding vote at the company’s annual meeting last week.
Proxy advisers such as Institutional Shareholder Services (ISS) recommended that investors oppose the policy, saying the level of variable compensation was excessive.
Quietly, just two days before the AGM, Intertek slipped out a public announcement.
“Following engagement with investors and consultation with advisors, the company announces that it no longer intends to seek shareholder approval for the new directors’ remuneration policy.”
“The company will revert to the current Directors’ Remuneration Policy approved by shareholders, which will be kept under review.”
Translated, it means: we were about to lose, but we’re not giving up. I understand Intertek now plans to consult with investors over revisions to the plans which were about to be defeated, with a modest reduction to Lacroix’s proposed long-term incentive likely.
The changes will come after an AGM season in which institutional investors have been more robust at opposing pay policies than many – including me – expected. History suggests that Intertek’s board will be experiencing a profound sense of déjà vu this time next year.
Page turns on Telegraph sale even as Efune tries to write a different story
So, the page has indeed turned – or at least halfway. The announcement that RedBird Capital Partners had struck a £500m deal in principle to become majority-owner of The Daily Telegraph had begun to look like the only way out of a financial straitjacket for it and its Abu Dhabi partner, IMI.
Gerry Cardinale, the RedBird principal, freely admits he has little experience of the news industry, but argues that his track record at extracting value from intellectual property-based businesses is sufficient reason to be confident about the Telegraph.
As I reported last week on Sky News, Lord Rothermere is in advanced talks to buy a 9.9% stake in the Telegraph publisher. Sources say he is expected to pay just under £35m for the shareholding.
His addition to the deal could pave the way for sharing of some back-office costs, extending the partnership the two companies already have in advertising sales. Dovid Efune, the New York Sun publisher pitching his offer – from Manhattan – as ‘the British bid’, has not given up all hope, however – his proposed takeover of the Telegraph now has backing from Jeremy Hosking, the Brexit campaign-backing investor. His pleas are likely to fall on deaf ears, given that the selling investors are also those who are buying the Telegraph. Regulatory scrutiny aside, RedBird’s swoop looks like a done deal.