BAA rejects 'ridiculously low' bid

Ferrovial teams up with Singapore and Quebec for £8.8bn offer * Spanish say they may go higher

Ferrovial, which is controlled by the wealthy Del Pino family, indicated it would raise the offer slightly if BAA opened its books, but BAA said its board had "no hesitation in rejecting this proposal, which does not begin to reflect the true value of BAA's unique portfolio of airport assets".

Analysts had been expecting a bid pitched at around 900p a share, but some were not really surprised, saying the conditional bid was designed to "draw a line in the sand." Ferrovial is thought to have come under pressure from the UK Takeover Panel to "put up or shut up" after saying more than four weeks ago that it was considering a bid.

The 810p-per-share cash offer is far below BAA's closing price of 839p on Thursday. Ferrovial argued it represents a 27 per cent premium to the share price before speculation began about a takeover. It described its bid as a "bear hug approach", saying: "It is the strong preference of the consortium to proceed with the transaction on a recommended basis." But the Spanish firm did not rule out going hostile by taking its offer directly to BAA shareholders.

Andrew Fitchie, at Collins Stewart, said: "810p is ridiculously low and I don't think it will be accepted by most BAA shareholders." Scottish Widows and a number of institutional investors have indicated they would only settle for an offer of at least 900p a share. Other recent deals in the sector were valued at about 15 times earnings before interest, tax, depreciation and amortisation. On that basis, BAA would be worth about 1,000p a share.

BAA is the world's leading airport operator and owns seven airports in Britain including Heathrow, Gatwick and Stansted. Ferrovial is leading a consortium that also includes the private equity investment arm of the Government of Singapore and the Canadian fund management firm Caisse de depot et placement du Quebec.

The Australian investment bank Macquarie, which recently abandoned its ambitions towards the London Stock Exchange, has approached the US private-equity group Blackstone and Canada's Ontario Teachers' Pension Plan about putting together a rival bid for BAA. Macquarie was tight-lipped yesterday, but a source said it would take its time and a bid was unlikely to be imminent.

Ferrovial is working with Citigroup, Royal Bank of Scotland and Spain's Santander on debt financing for its bid. It believes its proposal satisfies concerns expressed by the regulator, the Civil Aviation Authority. Last month the CAA fired a warning shot across the bows of Ferrovial by saying a highly debt-financed offer might operate against the public interest. It said it had the power to refer any bidder to the Competition Commission if it was concerned that the financing of the company might compromise its investment in new airport facilities. It has not indicated what level of gearing for BAA it would be comfortable with to ensure the company's debt remains at investment grade level.

But Ferrovial stressed it would honour BAA's investment in Britain and keep the UK's regulated airports, in response to fears it might break the group up. The Spanish firm said it put in a call to the CAA yesterday and would sit down with the regulator to convince it that it was "in it for the long term". Ferrovial, which owns Bristol airport in a joint venture with Macquarie, failed to acquire Exeter airport last year on monopolistic grounds.

The CAA's concerns about BAA's level of indebtedness will also limit the company's scope to shore up its defences against the Ferrovial bid through special dividends or share buy-backs.

Look who's bidding for BAA

Ferrovial

The third-largest infrastructure group in Spain, with a strong presence in the United States, is led by Rafael del Pino. He is the eldest son of Ferrovial's founder, Rafael del Pino senior, Spain's second richest man. His ambition is to take the company his father built over 50 years in Spain and Latin America and turn it into a truly global group. Taking over BAA is the big deal that could transform Ferrovial.

GIC Special Investments

The private-equity investment arm of the Government of Singapore Investment Corporation (GIC) is one of the largest private equity investors worldwide. GIC was set up in 1981 to manage Singapore's foreign reserves and has grown from managing a few billion dollars to more than $100bn today. It is governed by a board of directors headed by Singapore's president.

Caisse de depot et placement du Quebec (CDP)

With Canadian $122bn of assets, the Canadian fund manager is one of the richest and some say shrewdest players in Canadian business.

Once known as a nationalistic financial backer of Quebec entrepreneurs, it has come a long way and is now taking aggressive positions outside Canada.