Jeremy Warner's Outlook: Spanish play for time in assault on BAA, but are they prepared to pay what it takes to win?

BAE/Airbus: mutually agreed divorce; Harry Potter and the Chancellor's stone
Click to follow
The Independent Online

Grupo Ferrovial's bid for BAA has finally made it to the runway, but it cannot yet be said to have reached take-off. Indeed, the only apparent significance of yesterday's formal offer on the previously indicated terms is that it has bought the Spanish construction and infrastructure operating company more time in its bid for Britain's biggest airport operator.

Ferrovial was under directions from the Takeover Panel to "put up or shut up" by 24 April. The consortium believed it would be impossible to come up with an offer in that time that would meet with the BAA board's approval. By putting the approach on a formal takeover timetable, Ferrovial now has eight weeks to deliver such an offer rather than two.

Yet if all the Spanish want is more time, why launch the offer right now; why not wait until the end of the put up or shut up period before tabling the formal bid? It's hard to resist the view that the real intention is only that of massaging expectations down.

This was also the purpose of the recent low-ball offer from Macquarie Bank of Australia for the London Stock Exchange, again pitched at below the ruling stock market price. The parallel is not an exact one, for in the case of the LSE, market perceptions of what the company was worth more than doubled while Macquarie was mulling its options. The price simply ran away from bidders in a manner which is much less likely with BAA.

Even so, the tactics are a bit of a puzzle. BAA's chairman, Marcus Agius, reasonably interpreted yesterday's offer as "hostile", despite the fact that the accompanying documentation is couched in conciliatory, non-hostile terms. But how else to read a bid pitched at a level which had already been categorically rejected?

Ferrovial's chairman, Rafael del Pino, says he is keen to engage in a dialogue with BAA, yet he has so far made no attempt to do so. Since he made his initial approach nearly a month ago, there has been complete radio silence. Instead, his tactics seem to be those of the bear hug.

Similar tactics were almost laughably inappropriate when applied to the London Stock Exchange, but they worked a treat with Saint-Gobain's recent takeover approach for BPB Industries. The French construction giant started low, raised a bit, then eventually came in with an offer which it must have been prepared to pay all along.

What price does Mr del Pino have in mind? To pass muster with shareholders, it will have to be at least 850p a share and to win the board's backing, it will need to have a nine in front of it. As it stands, the offer barely merits a response. We can only assume that eventually Ferrovial will bid something a little more serious.

Yet if Ferrovial can leverage up its bid with debt to the rumoured degree and still win clearance from regulators, so can BAA. The success of a number of recent bid defences shows there is a real appetite among investors for capital returns which would previously have been seen as excessively high risk. BAA must prepare to marshal a similar defence.

BAE/Airbus: mutually agreed divorce

Hard to believe in this age of near terminal decline in UK manufacturing, but the first commercial aircraft to be developed and flown was a British one - the de Havilland Comet Long-Range Jetliner. But for a design flaw, which took some years to correct and in the meantime allowed Boeing and Douglas to claim the bulk of the market, Britain might still today dominate the air.

With de Havilland's successor company, BAE Systems, now determined on selling its 20 per cent stake in Airbus to the Franco-German aerospace company EADS, Britain seems destined to pull out of the commercial aerospace industry altogether - at least in so far as the aircraft are concerned. Through Rolls Royce, Britain remains one of the top two world producers of jet engines.

As it happens, the £3bn sale of the 20 per cent stake doesn't spell an immediate end to Britain's involvement in Airbus either. The 12,000 jobs directly attributable to Airbus in the UK, and the estimated 125,000 jobs in UK supply companies which are dependent on Airbus work, are safeguarded by guarantee, regardless of whether BAE is an equity holder or not. After the £1.2bn of launch aid contributed over the years by the British taxpayer, Airbus could not in any case rationalise these jobs out of existence without a furious political row.

Yet once the present generation of airborne monsters pass their sell-by date, it's hard to believe there will be any place for Broughton and Bristol in helping to manufacture their successors. If you were setting up Airbus from scratch, you wouldn't choose to do it in the manner that currently exists, with the aircraft assembled from components made in separate corners of Europe. The main British contribution is the wings, which then have to be expensively transported to Toulouse, where they are bolted on to the rest of the fuselage.

The present structure owes its existence to the way in which the company was set up as a pan-European venture in civil aviation and co-operation to take on the mighty Boeing. It was only comparatively recently that Airbus was converted from a consortium of European aerospace companies into a standalone venture with its own assets. That started the process which today enables BAE to sell out. Once it has completed that process, and once the present range of jetliners has been superseded by others, it is inevitable that Airbus will reorganise production on more logical lines. That point may not be as distant as imagined.

Most politically inspired industrial projects end in failure, yet to the astonishment of all, Airbus has been a soaraway success, having recently overtaken Boeing, both in terms of orders and deliveries. So why is BAE selling? One reason is that civil aerospace is almost certainly approaching its cyclical peak.

Even if you believe that demand from China and India will keep growing for some years yet, there's always the danger that America and Europe will soon by joined by Asia as a competitor in this capital intensive industry. China already has its own space programme and has publicly declared its intention of eventually entering the civil aviation industry too.

The long-term future for Airbus may therefore not be as secure as many Europeans think. With its limitless supply of cheap labour and fast growing markets, China has the potential eventually to take Airbus to the cleaners. The technological know-how isn't yet there, but there's no shortage of ambition and given the present pace of development, the Chinese may get there much sooner than imagined. In any case, BAE has taken the view that in both the short and medium term, civil aviation is not the place to be. The £3bn-£4bn valuation being put on the company's 20 per cent stake may be as good as it gets.

What will Mike Turner, the chief executive, do with the money? The pension fund still needs plugging, and that will swallow up some of it. Mr Turner is more likely to buy Top Shop than L3, the US defence contractor with which his name has been linked, but there is little doubt he has his eyes set on other bolt-on acquisitions the other side of the pond. The special relationship, it seems, is still worth more to BAE than the Entente Cordiale. Yet Mr Turner will also be under pressure to return at least part of the money to shareholders. Either way, there will be no more money for the Comet's successors.

Harry Potter and the Chancellor's stone

From Harry Potter to Gordon Brown. Nigel Newton, chairman of Bloomsbury, announced this week he was broadening his range of authors by adding a collection of the Chancellor's speeches to his catalogue. Having already bagged the prize for the bestselling work of fiction of all time, Mr Newton must be bidding for another place in the record books. Not since Accounting: Texts and Cases by Robert N Anthony has a book promised to be quite so sleep inducing.

j.warner@independent.co.uk

Comments