BAA owns seven of the UK’s biggest airports, including the London trio of Heathrow, Gatwick and Stansted.
“Shareholders want something beginning with a nine. The company will struggle to defend the bid at this level,” said Robert Waugh, head of UK equities at fund manager Scottish Widows, BAA’s top shareholder with a 3.1% stake.
He said the figure was based on the “fair value” of BAA, and took into consideration Spanish accounting provisions that would allow Ferrovial to write off BAA’s goodwill — its intangible assets — against taxes. Analysts believe the tax break could be worth 50p a share.
The City’s willingness to deal with Spain will alarm transport ministers and officials, who are counting on BAA to deliver its airport policies, such as the construction of a new Stansted runway and a possible new runway at Heathrow in a decade’s time.
It will also sound an alarm bell in BAA’s boardroom. BAA refused to comment on Ferrovial’s declaration last week that it was considering a bid. But the airports operator rejected suggestions it had appointed UBS, its joint broker, as an adviser alongside NM Rothschild.
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Shareholders are expected to tell BAA this week it will have to come up with plans to deliver greater value if it is to fight off the bid. One option is to split BAA into an operating company and a property group. Although shareholders support the scheme, some bankers say it is impractical because of the nature of BAA’s regulated assets.
But BAA has already fallen foul of some big City institutions by agreeing to insert a change-of-control clause into a £2 billion issue that it planned to use to refinance its recent purchase of Budapest airport.
Some shareholders have condemned the move as coming close to adopting a poison-pill defence against a takeover.
Investors who bought the bonds 10 days ago demanded the change after Ferrovial declared its hand. BAA agreed to the request late on Friday.
Bondholders will now have the right to demand to buy back bonds at par value if there is a change of control, or if BAA’s credit rating falls below investment grade. The move has the potential to increase dramatically a bidder’s financing costs.
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BAA said it had little choice but to comply, as the Ferrovial move would have required it to issue a supplementary prospectus for the bonds, which would allow investors to pull out.