Spanish win BAA with £10.3bn bid

The Spanish construction giant Ferrovial was poised last night to win the takeover battle for the airports operator BAA with a bid worth £10.3bn.

After a dramatic late night auction involving Ferrovial and a rival bid headed by Goldman Sachs the Spanish-led consortium was set to emerge victorious for the owner of Heathrow, Gatwick and Stansted airports with an offer worth 950p.

It is understood that Goldman's offered 955p but that its bid was felt to be too hedged in with conditions. Sources close to the investment bank disputed that, saying the offer was "fully-financed".

Barring a last minute change of heart it appears as if the BAA board, led by the chief executive Mike Clasper and chairman Marcus Agius will recommend the Ferrovial-led bid today. The other two partners in the consortium are CDP, the Canadian pension fund investment group, and GIC, the private equity arm of the Singapore government.

Goldman's was supported in its bid by Canada's Borealis Infrastructure Management, part of the Ontario Muncipal Employees Retirement Fund, the US insurer American International Group Commonwealth Bank of Australia which was prepared to commit $A1bn (£435m) of funding towards the bid.

Yesterday's tumultuous auction started at 9 am and was still going strong more than 12 hours later. It began when Ferrovial's advisers, Citigroup, approached BAA asking for negotiations on a recommended offer, knowing that they only hand until midnight last night to improve their 900p-a-share bid.

A short time afterwards, Goldman's entered the fray. It is thought that Ferrovial raised its bid at least three times before finally establishing itself as the favourite to win the auction.

Sources close to the Goldman's camp said they were puzzled by BAA's apparent decision to go with the Ferrovial offer, claiming there were no conditions attached to its offer.

However, it is understood that there were a number of aspects to the Goldman's bid which taken together were enough to sway the BAA in board in favour of the Spanish offer.

The Ferrovial bid of 950p is understood to include the 15p dividend which BAA has already declared, effectively making it worth 935p for BAA shareholders.

In its final defence document a fortnight ago the company said it was worth at least 940p a share, not including a premium for control of the company.

A takeover of BAA by Ferrovial will hand control of seven UK airports to a foreign company. London Luton airport is already owned by another Spanish group Abertis.

Ferrovial is expected to sell off most of BAA's overseas interests to help finance its takeover, which will result in BAA being saddled with more than £12bn of debt.

BAA accounts for 63 per cent of all airline passengers flying into and out of the UK but in the London area it has a virtual monopoly, controlling 92 per cent of the market. The Office of Fair Trading is considering launching an investigation into BAA's monopoly which could result in it being referred to the Competition Commission and ultimately broken up.

There had been fears that the OFT's intervention would deter the two rival bidders but neither has been fazed by the prospect of a competition inquiry.

BAA has already been under siege for four months and ministers will be relieved to see an end to the uncertainty over the company and the distraction for its management, given the strategic nature of BAA's assets. Its investment programme for the next 10 years envisages spending of £9.5bn and includes a second runway at Stansted and a £1.5bn redevelopment of the central terminal area at Heathrow.

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