Mark Leftly: Why BAA's right to air its ire over Stansted sell-off
The regulator has set an unreasonable timeframe
The more devastating the butchering of airport operator BAA, the better: I'd like to see the terminals at Heathrow run by different companies, never mind just forcing it to sell whole airports.
But the decision of BAA's parent, the Spanish conglomerate Ferrovial, on Wednesday to launch yet another legal challenge to the Competition Commission's decision that it must offload Stansted warrants sympathy.
Never mind the airports serve different parts of the South-east and are 65 miles from each other, and that Heathrow targets business customers, while Stansted is after holidaymakers on cheap flights with Ryanair. For BAA, timing is as important here as the principle of fighting the commission's muddled argument.
For all the faults of BAA's stranglehold of the airport markets – if you're into the study of "queuing theory", you will know that Heathrow fails any capacity measurement of what is considered acceptable use of its runways, check-ins and security processing – the Competition Commission should have shown some leniency on when the break-up took place.
The UK has had a quarter of a century to sort out the monopoly the Thatcher government created in BAA – authorities should not have waited until one of the greatest economic depressions the world has known to start slicing and dicing the group. Punishing BAA for its operational performance was right and necessary; forcing BAA to accept pennies for its assets was not.
Take Gatwick. BAA rushed through an auction in 2009 so it did not appear to be a forced seller, rather that it had begrudgingly accepted the commission's decision. No one swallowed that line, so the bids were low and BAA ended up selling the world's most prominent single runway airport for £1.5bn – about half what it could have got in the boom times.
I'm not saying the commission should have told BAA it could wait to sell until we returned to the days of ludicrously cheap debt. But it should have given a reasonable timeframe of, say, five years, so that management could try to time the sale in the best interest of the business.
What's happening now is a waste of time and money but is perfectly understandable from BAA's point of view. I doubt it will win its latest appeal and I doubt Ferrovial believes it will either – they haven't exactly got a glowing record in their legal fights with the commission so far – but this will buy the group a few more months.
Those months could be vital as the eventual prices BAA secures for Stansted and Edinburgh, the asset BAA is currently selling as a result of the commission's decree, are dependent on keeping a good distance between the auctions.
Banks are slowly coming around to the idea that major infrastructure assets with secure, long-term returns are still worth lending on. There was surprising interest in Edinburgh from banks when the parties involved worked up their bids in January.
Banks were willing to lend potential bidders around £400m on what is expected to be an eventual price tag of between £600m and £700m. Also, the fact unusual investors – Carlyle Group and JP Morgan Asset Management – have made it to the four-strong shortlist suggests airports are attractive to companies with plenty of cash, but little to play with in the equity markets.
If BAA had accepted its latest defeat in the Stansted battle, on 1 February in the Competition Appeal Tribunal, the auction of the Essex airport would have taken place shortly after Edinburgh. Suddenly, the market is then saturated, banks spread their lending over two auctions and bidders lower their offers as they know there is another sale in the offing.
Plenty will argue that BAA has exploited its monopoly over the years and so shouldn't be given any quarter now. It is certainly true that the British airport industry is in desperate need of shaking up, and speed is of the essence.
However, the commission should tell Ferrovial there is no need to fight the decision any longer, it will compromise by giving the group the opportunity of a little freedom on the timing and handling of the Stansted sale.
Anything less and the commission looks as if it has adopted the prevailing social and political mood of bashing big business, rather than taking decisions that are right, fair and make economic sense.
Glencore plays the long game to tire Xstrata shareholders into submission
Any investors in Xstrata hoping for an improved offer for their company tomorrow will be disappointed.
To recap, the commodities giant Glencore is looking to complete a megamerger with the coal-to-nickel mining firm Xstrata, which would create one of the behemoths of world industry worth more than £50bn.
Glencore, run by a string of billionaires including the chief executive, Ivan Glasenberg, has offered 2.8 shares for every one share of Xstrata. In terms of valuations, this gives Glencore shareholders a majority of the combined group, but Xstrata investors believe their company has better prospects and want improved terms.
However, Glencore has already made concessions in allowing Xstrata's bosses, Mick Davis and Sir John Bond, to become chief executive and chairman respectively. Glasenberg will be deputy chief executive, but will no doubt take the top job before long.
There are suggestions that Glencore will have to increase its offer to 3.3 shares. Some even think this could be announced at Glencore's annual results tomorrow, but sources close to the deal say this is unlikely.
It's also unnecessary. Glasenberg is playing a very long game on this – the deal prospectus is still well over a month from being published – in the belief that Xstrata shareholders will tire of the situation and accept that the deal is inevitable.
Most likely is that Glencore will sweeten the terms ever so slightly nearer the time, but nothing close to the 3.3 shares. A slight increase might be just enough for fund managers to conclude that the deal is not worth fighting.
There is a recent precedent for this. When Centrica went after the North Sea oil & gas group Venture Production, shareholders told me that an offer would have to "start with a nine" when they were expecting it to start with a seven. In the end, it was 845p – and fund managers begrudgingly accepted the offer, bemoaning their bad luck in that Centrica had played its hand perfectly.
A similar situation will emerge in this deal.
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