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Biggest airport story of the year? - Ferrovial “considers bid” for BAA


The airport business was stunned by an announcement from Madrid-based construction and services conglomerate, Grupo Ferrovial, that it is considering making an offer for the entire issued and to-be-issued share capital of BAA plc, the world’s largest privatised airport operator.

Ferrovial declared it had made no firm offer to BAA’s board as yet, but that any bid was likely to be a cash one, and as part of a consortium. There was no immediate comment from BAA other than that it had not received any proposal from Ferrovial and it advised shareholders “to take no action at this time”.

Initial reactions from industry leaders such as Fraport and Macquarie Airports (the second biggest privatised operator) suggested they were not interested in joining any such consortium (Fraport) or that they preferred not to say right now (Macquarie).

Ferrovial made the announcement in compliance with UK law and through the London Stock Exchange's Regulatory Information Service. (Interestingly, Macquarie Bank is still involved in a bid for the LSE itself).

There is no direct comparison between BAA and Ferrovial in pure airport terms. BAA operates seven UK airports handling 142 million passengers annually, second only to Spain’s Aena (188 million). It has interests in Australia (equity stakes at six airports), the US (management and retail management contracts at six airports) and Italy (equity stake at Naples) and has recently acquired a controlling stake in Budapest Airport for USD2.2. billion. That transaction is proving to be a difficult one, with a lawsuit and industrial action following on from the acquisition though the potential is high in both aeronautical and non-aeronautical terms. 

BAA also has significant divisions such as World Duty Free with a 2004-05 revenue of GBP373 million and BAA Lynton, which manages the Airport Property Partnership with Morley Fund Management, jointly building a European property portfolio worth around GBP15 billion.

By comparison, Ferrovial is a conglomerate with broad interests in construction, infrastructure maintenance, real estate, facility management and waste management. In 2003 it bought the UK construction company Amey. Its Infrastructure Division has really only dabbled in airport operations previously by comparison with work in the roads, car parks and railways sectors, but most of its expansion since 2003 has been outside Spain and, crucially, its investment in airports is now up to 12% of the total of the Infrastructure Division, more than car parks (10%) but still some way behind toll roads (78%). 6% of its investment is in the UK (c.f. Spain, 29%). 

The four airports it operates handle approximately 35 million passengers annually. Through a subsidiary, Cintra Aparciamentos, Ferrovial has contracts for the consolidation and expansion of airport car park management with Aena.

Ferrovial entered airport management in 1999 when it acquired, through a consortium, 24.5% of ASUR (Mexico) and the lease on Niagara Falls Airport, USA, under the privatisation pilot programme. Since then it acquired 50% of the UK’s Bristol Airport in conjunction with Macquarie Airports, Belfast City Airport (also UK) from Bombardier/Short Brothers and Antofagasta Airport in Chile. It also took on the operating concession at Sydney Airport

Another joint bid with Macquarie (as Southwest Airports Consortium) to acquire the small Exeter Airport in the UK foundered in Nov-05 owing to a competition review brought about partly by the ownership of the nearby Bristol Airport. BAA is a big step up indeed from these comparative tiddlers in Europe.

Ferrovial’s bid should not really come as a surprise. Recent months, indeed years, have seen a great deal of interest by Spanish companies in British ones, in several sectors, especially banking and telecommunications. 

More pertently, Aena Internacional was successful as a junior partner with Barcelona-based Abertis, another conglomerate, smaller than but similar to Ferrovial, in acquiring more than a 90% stake in TBI at the beginning of 2005, via the vehicle ACDL. 

Abertis, which together with Aena took on responsibilty for 11 airports in the UK, Sweden, US, Bolivia and Costa Rica in this transaction described the airports sector as “interesting” at the time and one must assume Ferrovial concurs.

During the last two years BAA’s share price has been broadly consistent with the averages of the FTSE 100, (Financial Times top 100 companies by capitalisation), FTSE Transport and FTSE Utilities measures, occasionally outperforming or under-performing markedly, and in line with events affecting the industry both positively and negatively. 

As of 08-Feb its shares were trading at GBP7.54, a gain of almost GBP1.00 on the day. Ferrovial’s share price gained by almost 6% by the end of the day’s trading on the IBEX exchange.

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