The airports operator BAA is limbering up to return cash to shareholders if the Spanish construction group Ferrovial or a rival consortium led by Goldman Sachs comes up with a significantly increased takeover offer.
In its first formal defence against the hostile £8.75bn bid from Ferrovial, BAA accused it of trying to buy the company "on the cheap" and said it was worth "way north" of the 810p-a-share the Spanish consortium is offering. An 870p approach from the Goldman consortium has also been rejected.
BAA also unveiled plans to increase its capital investment programme by £2.5bn over the next 10 years to £9.5bn - a move that will result in its debts peaking at about £9bn in 2012.
The owner of Heathrow, Gatwick and Stansted airports is keeping its powder dry until later in the bid battle in the expectation that Ferrovial will increase its offer. When Ferrovial first made an offer at 810p, however, it said there would only be a "small increase" in the price in return for a recommendation from the BAA board.
In a letter to shareholders urging them to reject the bid from Ferrovial and its Canadian and Singaporean partners, the BAA chairman, Marcus Agius, said: "Don't sell your shares. It's not the right time. It's not the right price. The BAA board is determined that neither they nor anyone else should be allowed to buy BAA on the cheap."
BAA did not spell out what its plans were for resisting a higher offer. But it is understood that the board is looking at some form of capital return.
BAA's ability to hand back cash is limited by its heavy investment programme, particularly on its south-east airports, and concerns on the part of the regulator that its balance sheet could become too stretched.
But the airports operator is likely to argue that it would become even more heavily indebted if Ferrovial was successful in its bid. The Ferrovial consortium plans to finance its offer with £6.6bn of debt. Added to BAA's own projected borrowings, this would leave it with debts of £13bn by 2008 once the building of Heathrow's Terminal 5 is complete.
The additional £2.5bn of investment earmarked by BAA is made up of £700m to be spent on an upgrade of Heathrow's central terminal area to create a new terminal known as Heathrow East and £1.84bn of expenditure on a second runway at Stansted, together with new terminal and rail facilities. BAA is forecasting average annual passenger growth of 3 per cent over the 10-year period.Reuse content