RAC drives off with BSM after pounds 54m deal

Two of the most famous names in British motoring, are teaming up with RAC yesterday agreeing to pay pounds 54.4m for the struggling BSM drivi ng school company. Buying BSM should enable the motoring organisation to offer its members everything from smart car navigation systems to one- stop travel shops. However, the rival AA may already be out in front. Sameena Ahmad reports.

RAC's recommended cash bid at 195p a share is the mutual organisation's first acquisition of a public company and biggest buy since it first started operating a century ago. The bid, which does not need approval by RAC's 5.8 million members and is being funded out of reserves, will rescue BSM's investors who have seen the value of their shares plunge from over 200p last year to 127.5p before the bid. BSM's shares surged 63p to 190.5p yesterday when RAC's offer was announced. By the close of dealings yesterday, RAC had bought 28.8 per cent of BSM's share capital.

RAC's move is part of its ambitious plans to become a global transport information provider and grab market share from rival the AA, whose larger membership, at 9.2 million, is growing fast. The AA also has a driving school division, with around 8 per cent of the UK market, half of BSM's share. Unlike BSM, which has been losing instructors and learner drivers following the introduction this summer of the new written theory test, AA's driving school business, started in 1990, looks strong.

RAC, which also operates two private clubs for its 13,000 full members, says that the acquisition of BSM is not about beating the AA in the driving school market. Neil Johnson, RAC's chief executive, says its plans are much broader. Initially BSM's 135 centres will be expanded and repositioned to offer customers everything from learner driving, through to advanced training and driving simulators, currently being trialled by BSM.

Supported by the Government, RAC plans to move away from a focus on motorists to providing an integrated transport service to the general traveller. This includes copying the likes of Trafficmaster as a service provider for car navigation systems, offering travel smart cards and information centres. RAC is understood to be teaming up with Richard Branson's Virgin group next year.

"The new car market is moving towards infomatics in a big way. Interruptions to a journey in the next 10-15 years will not be breakdowns, but congestion. Motorists will require very sophisticated technology." He said that RAC's first in-car information service could be ready in 12 months.

But analysts said that in transport information technology, RAC lagged the AA. Mr Johnson admitted that although RAC gathered vast amounts of information, its use of the data was currently at a "stone age level of technology." By contrast, in February the AA is with Vauxhall launching a satellite system OnStar, which gives customers live traffic data.