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Last Updated: Tuesday, 6 June 2006, 10:58 GMT 11:58 UK
BAA agrees to Ferrovial takeover
Passenger checking departure monitors at Heathrow
The takeover by Ferrovial comes after weeks of discussions
Airports operator BAA has confirmed its support for a takeover by Spanish building group Ferrovial.

BAA, which runs seven UK airports, has agreed to an offer of 950.25 pence a share offer, valuing it at 10.3bn.

Ferrovial beat off competition from a consortium led by US bank Goldman Sachs, which said it had made an offer worth a total of 955.25p a share.

Goldman Sachs urged shareholders "to take no action" and promised a further announcement "in due course".

On Tuesday, the Takeover Panel extended the deadline for a bid from the Goldman Sachs consortium to 16 June.

Bid battle

BAA, which operates airports handling 63% of all air passengers entering or leaving the UK, had previously resisted being taken over, but is now recommending the Ferrovial approach to shareholders.

Ferrovial's latest offer marks a 17% price increase on its original 810 pence-per-share approach, and is 49% more than the level BAA's share price was at before Ferrovial's interest became known.

Heathrow - 67.7 million a year
Gatwick - 32 million
Stansted - 22 million
Southampton - 1.5 million
Glasgow - 8.7 million
Edinburgh - 8 million
Aberdeen - 2.7 million
Source: BAA

Discussions regarding a takeover have been going on since February, when Ferrovial said it was considering an approach for the Heathrow Airport operator.

Two months later, the Spanish group made a hostile takeover bid for BAA, after the UK firm's board rejected its approaches.

The Ferrovial consortium's 950.25p-per-share offer includes a proposed final dividend of 15.25p per share. The Goldman Sachs-led consortium's offer of 955.25p a share also included a 15.25p dividend.

The latest offer includes a break-fee that BAA would have to pay Ferrovial in the event that BAA reneged on the transaction and reached a deal with a third party.

The cost of that fee is 115.5m, or about 9 pence per share.

The Ferrovial consortium's bid vehicle, Airport Development and Investment Limited (ADI), said it would safeguard the existing employment rights of all BAA group employees, including pensions rights, but added that it would also examine ways to cut costs.

Competition question

BAA - which, in addition to owning seven UK airports, also has business interests in the US, Italy and Hungary - has been seen as a popular takeover target for companies hoping to exploit the surge in air travel worldwide.

Annual revenues of 8,989m euros
Employs more than 78,000 workers
Has a presence in 40 countries
In 2005, 46% of operating profits came from outside Spain
Owns 50% of Bristol airport
Owns 100% of Belfast City airport
Owns 20.9% of Sydney airport
Owns 100% of Cerro Moreno airport, Chile
Listed on the Madrid stock exchange

However, the company is facing a possible competition probe.

At the end of May, the Office of Fair Trading said that it might examine whether BAA's dominance as an airport operator was against the public interest.

In reaction to the announcement, Gwyneth Dunwoody, chairwoman of the Transport Select Committee, said that the takeover could be problematic.

BAA's debt will increase greatly regardless of whether it is owned by either Goldman or Ferrovial.

However, both bidding groups have insisted that the costs of servicing this debt would not lead them to cut the hugely-expensive investments being made by BAA - such as the construction of Terminal 5 at Heathrow.

Shares in BAA rose by 2.26% to reach 949 pence in morning trading after the announcement. Grupo Ferrovial's shares were down 2.7% at 59.3 euros.

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