But most employees will see little of the money and some face an uncertain future, with unions predicting 3,000 job losses – more than one in four – across the two companies.
The deal announced on Tuesday was brokered by the private equity firms that control both groups – AA-owners CVC and Permira, and Saga financier Charterhouse. It involves £4.8 billion in refinancing loans – £3 billion to pay off existing debts and £1.8 billion for investors.
It will be headed by Saga chief executive Andrew Goodsell, who will net £108 million from the deal and take 6% of shares in the new group.
Saga finance director Stuart Howard and marketing director Tim Bull will pocket £50 million apiece and 4% each of the shares Goodsell said: “These are two great brands, in complementary business areas.
“We see great opportunities to offer Saga’s products to the AA’s over-50 members and the AA’s products to Saga members.”
Saga was the subject of a management buyout financed by Charterhouse in 2004, when control passed from the founding de Haan family.
Turnover has grown 80% since. It boasts 2.5 million customers, 660,000 subscribers to its magazine, three cruise ships and a series of joint ventures with travel and hotel companies.
The AA has a database of 15 million and says 40% of its members are over 50, making it attractive to Saga, which makes 80% of its profits from financial services – including health, home and motor insurance.
Saga said the companies would be run separately, and neither its head office in Folkestone nor the AA office in Basingstoke are expected to close.
However, heavy job losses are expected, given the duplication of call centres and insurance operations.
The merger has scuppered Saga’s immediate plans for flotation.
Saga and the AA enter the merger with rather different cultures, despite the involvement of private equity companies in both, with the GMB union warning Saga employees to resist the spread of AA-style practices
The GMB represents staff at the AA and has members at Saga, and national officer Paul Maloney said: “Call centre staff at the AA are under total surveillance.
“Their toilet breaks are programmed. Every key stroke, phone call and e-mail is recorded.
“They have 234 seconds to take a call and complete a deal or they are performance-managed out of the business.”
It was the £1.7 billion buy out of the AA by CVC and Permira in 2004, and subsequent loss of 3,500 jobs, that triggered the current concern about private equity deals.
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