Ferrovial launches bid for BAA

MADRID/LONDON - Spanish construction firm Grupo Ferrovial launched an 8.75 billion pound ($49 billion) hostile bid for BAA today as it looks to bulk up in the booming European airports sector.

BAA, which runs London's Heathrow, Gatwick and Stansted airports, rejected the 810-pence-a-share cash offer from Ferrovial's bidding consortium, which was pitched at the same level as a non-binding proposal turned down by BAA last month.

"(It is) the same price that the board has already emphatically rejected as not beginning to reflect the true value of BAA's unique portfolio of strategic airport assets," BAA said in a statement.

BAA shares closed up 1.5 per cent at 847p ($24.18) after touching a new high of 855p, signalling investors expect a better offer, or for BAA to keep shareholders on side by, for example, returning cash to them. Ferrovial shares closed down 2.4 per cent at 67.1 euros, valuing the firm at 9.4 billion euros ($18.8 billion).

"We fully support the board's (BAA's) rejection of the cash offer at 810 pence from Grupo Ferrovial," Robert Waugh, head of UK equities at Scottish Widows Investment Partnership (SWIP), said in a statement. SWIP owns about 3.4 per cent of BAA.

F&C Asset Management, which owns about 1.75 per cent of BAA, also said 810p-a-share was too low.

Ferrovial is bidding with Caisse de Depot et Placement du Quebec and Singapore's GIC Special Investments and is advised by Australia's Macquarie Bank, to whom it will sell stakes in Sydney and Bristol airports if the bid goes through.

Ferrovial said that if it bought BAA it intended to focus on Britain and boost capacity, particularly in southeast England.

The country's aviation regulator, the Civil Aviation Authority, reiterated on Friday that bidders for BAA should plan for major upgrades to airport facilities when arranging their financing.

European airports have been drawing investors attracted by a highly visible, long-term outlook which predicts traffic in Europe will double by 2020 to 2 billion passengers. BAA fought off Germany's Hochtief in December to buy control of Hungary's Budapest airport from the state for US$2.2 billion ($3.6 billion).

BAA is the latest in a string of firms to attract a foreign bidder amid a global boom in takeover activity.

Such is the appetite that hostile deals are becoming more common, with data firm Dealogic identifying 41 hostile and unsolicited bids worth a total of US$238 billion globally in the first quarter of 2006, the second-highest quarter on record.

Opening shot

Market players said Ferrovial's bid could be an opening shot.

"This looks like a marker to me," said Paul Mumford, a fund manager at Cavendish Asset Management. "It will flush out any counter-bidders and also force BAA to come out and explain why they're worth more than 810p".

BAA shares have surged about 30 per cent since Ferrovial revealed its interest in early February. Some analysts think a successful bid will have to be pitched around 900p a share.

Ferrovial, which had until April 24 to announce a firm bid or walk away, said it was keen to talk to BAA to seek a recommended deal.

"Whilst this bid is being made unilaterally, we do not regard it as hostile," Ferrovial Chairman Rafael del Pino said in a statement.

The Spanish group has traditionally made most of its profits from Spain's booming building industry, but more recently has expanded overseas and into infrastructure services to offset cyclical construction operations.

Ferrovial said it had raised debt financing for its bid from Citigroup, Royal Bank of Scotland, Santander, HSBC and Calyon.

The bid was equivalent to 19.3 times BAA's undiluted earnings per share before exceptional items for the year ended March 2005, and was a 27 per cent premium to BAA's average share price for the 30 days ended February 6, it added in a statement.

Ferrovial said it was committed to "safe long-term funding" in the bond markets, and planned to consult with BAA's existing bondholders to help develop its long-term funding plans.

Ferrovial said it was offering to buy back BAA's convertible bonds due 2008 and 2009, at a price of 125.80 per cent of face value for the 2008 bond and 144.90 per cent for the 2009 bond.

Citigroup and Macquarie are advising Ferrovial's consortium on its bid, while Rothschild and UBS are acting for BAA.

- REUTERS