Saga and the AA unveiled surprise plans for a £6.2bn (€9.2bn) merger today, creating one of the UK's largest private equity-owned companies.
As the tie-up between the two household names is structured as a takeover of the AA, managers and staff at the motoring organisation, which is owned by heavyweight buy-out firms Permira and CVC, can expect bumper rewards.
The GMB union claimed AA chief executive Tim Parker will leave the business with around £80m (€118m), although the AA declined to comment.
Paul Maloney, national officer of the GMB union said: “This money was made on the back of sacking 3,500 people, cutting wages and call centre staff and lengthening the working day.
“The GMB will enter into talks with the new owners about reversing these cuts and getting back reasonable working practices as well as improving the service to customers.”
Permira and CVC will take some cash out of the company although the duo will reinvest much of their returns in the combined business.
The tie-up between the over-50s travel and insurance giant and the motoring organisation will create a company with more than 11,000 staff.
Saga’s management and employees currently own 20% of the business, with 80% owned by private equity firm Charterhouse. Mr Goodsell said his staff would gain a minimum £10,500 (€15,600) in cash and shares from the deal.
Workers have already benefited from the 2004 sale of the business to Charterhouse after former owner Roger de Haan offered staff £1,000 (€1,500) for every year of service.
Meanwhile Saga chief executive Andrew Goodsell’s 8% stake in the business is valued at £224m (€332m) by the deal.
Both companies have seen their worth double after being bought by private equity firms.
Saga – bought for £1.35bn (€2bn) by Charterhouse – is valued at £2.8bn (€4.1bn). Permira and CVC originally paid £1.75bn (€2.6bn) for the AA, now worth £3.35bn (€6bn).
Meanwhile AA’s management and staff have a combined 5% stake in the business, worth more than £167.5m (€248m) under the terms of the merger.
Leaders of private equity firms – including Permira’s managing partner Damon Buffini – faced a hostile reception from MPs holding an inquiry into the sector last week.
But Mr Goodsell said today’s deal was “about growth” rather than job cuts.
He said: “I’m looking to grow these businesses – they are going to be stand-alone businesses.”
Under today’s deal, which must be approved by regulators, Saga and the AA will continue to trade separately but the holding company for the combined business will be run by Saga.
Permira and CVC will own 42.5% of the new business, which has yet to be named, while Charterhouse will hold 37.5%. Management and staff of both businesses will own the remaining 20%.
Saga is aiming to target the AA’s 50-plus members with its products while offering AA services to its own 2.5 million customers. The AA has around 15 million members on its database.
The combined firm may seek a stock market listing when the merger of the businesses has been finalised, although Mr Goodsell would not set a definite time-frame for the move.
Mr Goodsell said: “I want to get everything fixed and then we will think about the next stage, but it would be a very natural thing for that to be as a quoted company.”
Saga made underlying earnings of £158.2m (€235m) in the year to January 31 2007, while AA posted underlying earnings of £272.7m (€405m) in the year to December 31 2006.