British utility Centrica has agreed to sell its Automobile Association (AA) roadside insurance business for £1.75 billion sterling ($3.2 billion) to raising cash to pay a higher dividend and buy back shares.
Centrica said today it was selling the AA to private equity firms CVC Capital Partners Ltd and Permira, and its shares soared nearly 8 per cent to 241-1/2 pence in morning trade as investors welcomed the disposal which was initially expected to raise around £1.5 billion.
Centrica said it would return £1.5 billion to investors through the share buyback and a special dividend, and targeted further investments of around £2-3 billion in energy assets over the next five years.
Centrica has expanded well beyond its traditional gas-and-power roots in recent years, entering areas such as telecoms and financial services.
As part of this expansion it bought the AA around five years for £1.1 billion, but many investors have long called on the group to refocus on its core utility business and use its cash to pay out a higher dividend.
Centrica said it would pay a special dividend of £1 billion and increase its dividend pay-out ratio to 40 per cent in 2004 and 50 per cent in 2005. It added that it would conduct a planned rolling share buyback programme of £500 millio