BAA rejects raised £9.7bn offer from Ferrovial consortium

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The airports operator BAA rejected an increased £9.73bn offer from a consortium led by the Spanish construction giant Ferrovial yesterday, setting the scene for a tense climax to the long-running takeover battle.

Ferrovial, which raised its bid by 11 per cent from 810p-a-share to 900p, has until Monday at the latest to put a higher offer on the table for the owner of Heathrow, Gatwick, Stansted and four other UK airports. Although BAA shares closed up 6 per cent at 870p last night, they are still 30p below the bid price, suggesting the market does not believe Ferrovial's latest offer will succeed.

Last night there were rumours that two of BAA's key long-term shareholders, Schroders and Threadneedle Asset Management, were set to come out publicly against the latest Spanish offer. Schroders, which owns 5 per cent of BAA and has reportedly valued the company at 1,000p-a-share, declined to comment.

Hedge funds are estimated to speak for about 20 per cent of BAA shares and could therefore be key to which way the bid battle goes. Last night, several said they were unimpressed by the increase in the Ferrovial offer from £8.75bn to £9.73bn. One hedge fund manager said: "Ferrovial can't win at this level. They have run out of time to do anything other than get a recommendation."

Another hedge fund manager said: "The feeling is that 900p is a good offer, but Ferrovial has a bit more to give to secure a recommendation. The message is: we are not selling at 900p, we would like to see more."

The additional £1bn put on the table by the Spanish and their two partners, the Canadian pension fund investor CDP and GIC, the private equity arm of the Singapore government, is almost all in the form of equity. That means the split of debt to equity funding in the bid is 60:40. Normally, Ferrovial likes to fund its infrastructure deals 80 per cent debt to 20 per cent equity.

Rafael del Pino, Ferrovial's chairman, put the increased offer to the BAA chairman Marcus Agius at a 30-minute meeting in London on Monday afternoon. The BAA board then met for an hour and unanimously decided to reject it on the grounds it still fell "well short of the true value of the company". BAA's final defence document last week put a value of at least 940p on the business.

Ferrovial indicated for the first time yesterday that if it does succeed in wresting control of BAA then there will be job cuts, although it declined to put a figure on how many of the 15,000 workforce would be at risk. It also said it had briefed the Department for Transport and the Civil Aviation Authority on ways to cut the £2.7bn cost of a second runway at Stansted through an "alternative capital expenditure plan" for the airport.

The revised offer also made it clear that BAA's non-UK airports, including Budapest which was bought for £1.5bn this year, could be sold off to pay down debt, which is likely to reach nearly £12bn should the bid succeed.

Meanwhile, BAA's latest report and accounts showed the pay of its chief executive Mike Clasper rose to more than £1m last year. He took home a total of £1.081m, including a £417,000 bonus, compared with £936,000 the previous year.

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