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30 May, 2006 - 07:43 By Staff Reporter

Battle for BAA hots up

The stakes have been raised in the battle for BAA. Stansted Airport’s owner has rejected a massively sweetened offer from Spanish group Ferrovial of 900p a share – valuing the UK business at £9.73bn.The stakes have been raised in the battle for BAA. Stansted Airport’s owner has rejected a massively sweetened offer from Spanish group Ferrovial of 900p a share – valuing the UK business at £9.73bn.

Although the offer was 11 per cent higher than the original bid, BAA smashed the hostile move out of court.

It is believed that BAA has also rejected an approach from US bank Goldman Sachs. But the bidding won’t stop there.

Ferrovial and Goldman Sachs are believed to be gathering even larger war chests to make an offer BAA can’t refuse at well over £10 bn.

Both the hostile bidding consortia are making sure their intentions are made known to BAA shareholders, caught in the middle like a card player with a stutter, not knowing whether to stick, twist or fold.

BAA’s own defence strategy includes a pledge to return £750m to investors if a hostile takeover bid fails so there is hardly any need for stockholders to do much more than sit back and wait and see what unfolds. They are certainly not going to lose out.

What is potentially more intriguing is the future of Stansted in what is looking increasingly like a break-up of BAA’s London monopoly.

The Office of Fair Trading is vetting the competitive aspects of BAA’s ownership of Heathrow, Stansted and Gatwick, which together handle 90 per cent of passengers in the London area and 63 per cent nationally.

With Grupo Ferrovial thought to be intent on breaking up BAA and selling off certain assets, the UK company’s hand may actually have been strengthened by the OFT inquiry.

It could head off any negative findings by instigating a strategy whereby one of its three London airports would be spun out as a separate business. Industry insiders believe Stansted would make the most sensible option as a stand-alone entity.

The Government is backing a second runway at Stansted amid growing clamour against the growth of Heathrow, so massive investment is already committed to the Essex hub.

It would make an extremely attractive and potentially highly profitable stand-alone company, leaving BAA to grapple with the teething troubles at Heathrow’s T5 but with the bonus of being able to raise charges at Gatwick.

In all, BAA also promised to invest £9.5bn in upgrading its airports over the next 10 years as well as focusing on the growth potential of its assets. The UK Government is keen to see BAA stay in British hand, otherwise its entire long-term aviation strategy could be blitzed.

The City believes that if BAA voluntary breaks up its London portfolio, it could enhance the total value of the business to such a celestial level that it would make even Ferrovial and Goldman Sachs’ backers blanche.

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