“Stay with BAA” |
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“This company will not be sold to the Ferrovial Consortium or any other bidder on the cheap,” says the BAA board |
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UK. BAA today launched its full defence against an £8.8 billion takeover bid from Airport Development and Investment Limited (AID), a consortium led by Spain’s Grupo Ferrovial. In the document, BAA values the company higher than 940 pence a share, well above the 810 pence a share offered by AID to date.
BAA also pledged a 40% dividend hike to shareholders in the 2006/07 financial year, with a 7% rise the year after. The company also repeated that it plans to return £750 million to shareholders if the Ferrovial-led bid lapses.
The document highlights what the BAA board sees as the four main building blocks for the value of BAA:
“The London airports, which are in a period of very strong growth, creating a demand for investment which the regulator has a statutory duty (among other duties) to incentivise.
“The non-London airports business, which generates higher returns than the London airports and which has nearly tripled in size with the acquisition of Budapest Airport.
“The opportunities that lie ahead, at home and abroad, for BAA’s first-rate management team to continue creating additional value in this dynamic sector.
“Finally, in the context of a takeover bid, any bidder should expect to have to pay a premium to secure control of a company, particularly one which is the world’s leading and largest airport company, the last transport infrastructure stock remaining in the FTSE 100 index and which has prospects for growth with an in-built inflation hedge.”
“The circular provides a clear method for valuing these building blocks that has led the Board to the conclusion that the value of BAA is clearly higher than 940 pence per share.”
On April 7, the Ferrovial-led consortium announced its offer of 810 pence per share to shareholders of BAA.
BAA Chairman Marcus Agius commented: “Over the last 15 weeks the Ferrovial Consortium has failed to offer BAA shareholders anything which approaches the true value of their company. We are confident about our company’s future – that’s why we are returning capital and increasing the dividend. We remain determined that this company will not be sold to the Ferrovial Consortium or any other bidder on the cheap.”
BAA Chief Executive Mike Clasper said: “We have today set out a very clear view of BAA’s value. I am very confident that we can deliver. Our shareholders should stay with BAA.”
Shareholders who wish to reject the Ferrovial Consortium’s offer need do nothing and should not sign any document which the Ferrovial Consortium or its advisers send to them.”
Under UK takeover rules, Ferrovial has until June 5 to raise its bid.
BAA also rejected a bid led by a group led by investment bank Goldman Sachs on March 30. BAA confirmed today that it had not been approached since by this consortium.
However, details of BAA’s bid defence were overshadowed by an announcement from the UK Office of Fair Trading (OFT) that it is considering a probe into the structure of the airports market, to establish whether the current structure works adequately for consumers.
The OFT has a duty to keep markets under review and it routinely reviews the economy to identify markets that may not work well for consumers and which might be possible candidates for market studies, which in turn could lead to possible referral to the Competition Commission. One of the possible candidates being considered relates to the structure of UK airport markets, the OFT said on Thursday.
In the context of the current bid offer for BAA and the European Commission’s clearance this week of the proposed takeover, the OFT said it would be “inappropriate to consider this issue further at this time without making public that the structure of the market may be reviewed”. The OFT plans to make a detailed announcement by the end of June on the scope of any review.
BAA said the announcement was “a complete surprise” to the company. BAA shares fell heavily after the news broke. By 15:30 Thursday UK time shares were trading at 784 pence, down 50 pence on the previous night’s close. They had recovered much of the lost ground by Friday however.
BAA added: “The UK airports market is heavily regulated by the Civil Aviation Authority (CAA) and the Competition Commission and previous assessments have concluded that the structure of the market does not operate against the public interest.
“BAA’s major businesses are already price regulated by the CAA and the Competition Commission in the interests of airport users. BAA therefore believes that the fact of the possible enquiry does not harm the underlying economics of its regulated airports.”
*On Friday May 26 Ferrovial responded, saying it would cooperate fully with any review of the airports market by the OFT, in the event of a successful bid for BAA. The company is also considering its response to the BAA defence document.
MORE STORIES ON BAA
Ferrovial-led consortium clears a key hurdle in bid for BAA with pension scheme agreement – 24/05/06
BAA unveils strong 2006 results as retail growth drives up operating profit – 16/05/06
Ferrovial’s BAA bid funded by 65:35 debt to equity – 21/04/06
