(Adds share price, executive comment)
By Freya Berry and Clare Hutchison
LONDON, June 23 (Reuters) - Shares in AA Group fellon Monday after the UK motoring organisation joined the Londonstock market, just a month after its sister company Saga failed to impress investors in its own debut.
The AA, best known for its roadside recovery services, saidit had priced its initial public offering (IPO) at 250 pence ashare to raise gross proceeds of 1.4 billion pounds ($2.4billion). Most of the money will go to its private equityowners.
Shares opened at 244 pence each and were last down 2.6percent in conditional trading.
More UK companies are seeking to list on the London stockmarket this year and investors have become increasingly choosyabout which companies they back and the prices they are willingto pay in recent weeks.
Proceeds from UK IPOs more than tripled in the year to datewith $8.8 billion raised across 33 listings, Thomson Reutersdata showed last month.
AA's share sale follows last month's flotation ofholidays-to-insurance company Saga, which its private equityowners merged with the AA in 2007 under parent vehicle Acromas.
Saga shares are trading at 170 pence, 8 percent below theprice they were sold at in the IPO.
Bankers pointed to other private equity-backed companiesthat have struggled after their market debuts. Spanish travelagency eDreams Odigeo, part-owned by Permira and Ardian, has lost almost 40 percent since its April listing,while Charterhouse's Card Factory has lostnearly 8 percent.
Conditional trading allows City firms to buy and sell sharesto stabilize the price before launching on public markets.
DEBT REDUCTION
AA's share sale enabled its private equity owners Permira, Charterhouse and CVC to sell their entireshareholding, after failing to sell anything with the Sagalisting.
The private equity firms sold their stakes to a managementbuy-in team, led by Bob Mackenzie, a former boss of car insurerGreen Flag who is to become AA's executive chairman, backed byinstitutional investors.
"London is still a fantastic place to raise money,"Mackenzie said.
"We saw 10 cornerstone investors and then we felt we hadenough to make a credible offer."
AA received commitments of over 930 million pounds fromthose investors, which include Aviva, BlackRock Inc. and Legal & General.
They will take on AA's roughly 3 billion pounds of debt.
"The focus is on deleveraging the business," said AAExecutive Director Martin Clarke. The company will use 185million pounds of the IPO proceeds, raised by the sale of newshares, to help pay down debt.
"The business is highly cash-generative and so willnaturally delever over time."
The AA is the UK's biggest motoring organisation androadside recovery service, with around 16 million customers. Italso offers motor and home insurance and a driving school.
The firm, which says it rescues a broken-down vehicle everynine seconds, had earnings before interest, tax, depreciationand amortisation (EBITDA) of 422.8 million pounds in the year toJan. 30.
Pretax profit was 214.6 million, down from 312.7 million ayear earlier because of an increase in finance costs.
The placement was brokered by Cenkos and advised byGreenhill and Deutsche Bank.
($1 = 0.5876 British Pounds) (Editing by Erica Billingham)