THE Kent-based company Saga, which sells holidays and other products to the over-50s, is to merge with motoring organisation AA in a deal valuing the combined firm at £6.15bn.

The deal, creating a company with more than 11,000 employees, would value the AA business at about £3.3bn.

The headquarters of the combined business will be in Folkestone, where Saga is currently based, but the AA's headquarters in Basingstoke will continue to operate and the two firms' various call centres will remain open.

Saga is convinced it can help the AA sell more financial products.

Private equity firms Permira and CVC bought the AA for £1.7bn in 2004. However, the deal proved controversial after the firm cut around 3,000 jobs.

The deal values Saga, which was bought by private equity firm Charterhouse for £1.35bn in 2005 and had been recently considering a flotation, at about £2.8bn.

Following the deal, Permira and CVC will own 42.5 per cent of the business, while Charterhouse will hold 37.5 per cent and the management and staff of both businesses the remaining 20 per cent.

Saga was founded in 1951 as a single hotel in Folkestone, but now has a database of 7.6 million customers and more than 2,500 staff.

Trade unions have led a campaign against job losses at the AA, which they have cited as an example of what they say is "ruthless" cost-cutting by private equity firms.

The GMB union said it would seek talks with Saga in an effort to reverse previous job cuts and to improve working conditions for staff.

The union also attacked what it claimed were the large sums set to be made by private equity bosses from the deal.

Andrew Goodsell, Saga's chief executive, will run the combined business following the deal, while AA chief executive Tim Parker is to leave the company.

Mr Goodsell told the BBC the deal would enable each business to retain its own identity while allowing them to cross-sell insurance and other financial products to each other's customer base.

He added: "These are two great brands, in different and complementary business areas but they have many features in common.

"Both organisations can grow and benefit from sharing expertise and systems."