Ferrovial may raise its hostile bid for BAA

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The Independent Online

The Spanish infrastructure group Ferrovial is considering raising its hostile bid for BAA, after the British airports operator suggested it may consider the possibility of a break-up.

BAA - which owns Gatwick, Heathrow and Stansted airports - has always defiantly resisted pressure to sell off any of its London assets, and made no mention of such a possibility in its defence document last week.

However, the unexpected news on Thursday that the Office of Fair Trading is to launch a competition inquiry into the sector, which could result in it being forced to sell some of its airports, appeared to force a rethink.

Several key shareholders, including Threadneedle Investments and Schroders, have said they believe a break-up of the group may be the best way of realising its full value, with analysts estimating such a move may add at least 100p to the company's share price. Ferrovial has until next Monday to increase its 810p-a-share offer, which has so far failed to impress shareholders.

Although the Spanish group is eventually expected to increase its offer, it is believed some of the board are keen to leave 810p per share on the table, and try to convince investors that the uncertainty created by the OFT inquiry justifies its low bid.

Ferrovial's backers, which include the Singaporean government's investment fund GIC and the Canadian investment fund Caisse de Dépôt et Placement du Québec, said the OFT review had not affected their support for the deal.

Through its ownership of the three largest London airports, BAA has an effective monopoly on flights into the capital, and the OFT is expected to recommend that the Competition Commission undertakes a full inquiry into the market within the next few weeks.

BAA says the British airports market is already heavily regulated, claiming its dominant position has not been of detriment to the public.

The Competition Commission investigated several years ago and did not order a break-up of BAA. The company believes it will come to the same conclusion this time. Should BAA voluntarily opt to break itself up, however, the sale of Gatwick airport is seen as the most likely first move.

In its defence of the Ferrovial bid, the group said it believes its true value to be around 940p a share. However, Schroders, which is one of the company's largest shareholders, has said it believes the company could be worth more than 1,000p a share.

BAA shares fell sharply after news of the OFT inquiry first emerged last week, as investors grew nervous that Ferrovial would not be able to finance its bid with the uncertainty of the inquiry hanging over BAA. After trading at 830p at the start of the week, well above the Ferrovial offer price, shares fell below 790p on Thursday.

However, they recovered to finish the week at 820.5p, giving the company a market value of £8.87bn.