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BAA puts Stansted up for sale

by Laura Board in London | Published August 20, 2012 at 10:07 AM

BAA Airports Ltd. on Monday, Aug. 20, abandoned a protracted legal battle against the enforced selloff of Stansted Airport Ltd. and said it would put the asset up for sale.

The unexpected capitulation came after the Court of Appeal on July 26 upheld the Competition Commission's order for the owner of London's Heathrow to sell Stansted, one of three airports the company was first told to divest in March 2009. That order sustained a series of appeals and counterappeals and in July 2011 emerged intact from a second Competition Commission review. BAA last month said it planned to appeal against the latest Court of Appeal ruling.

"Having carefully considered the Court of Appeal's recent ruling, BAA has decided not to appeal to the Supreme Court and is now proceeding with the sale of Stansted Airport," BAA said. "We still believe that the Competition Commission ruling fails to recognise that Stansted and Heathrow serve different markets."

The Competition Commission had in March 2009 told BAA to sell Gatwick, Stansted and either Edinburgh or Glasgow, but changed the selloff order when BAA in September 2011 launched a new appeal centered on the Stansted disposal. BAA based its appeal on the assertion that there had been "material changes" in the market for airport services since the first March 2009 ruling; in its original legal action it had alleged bias among the Competition Commission panel members reviewing BAA's market position.

BAA in April sold Edinburgh Airport Ltd. to Global Infrastructure Partners for an above-forecast £807.2 million ($1.3 billion); it sold Gatwick, located to the south of London, to the same investor for £1.51 billion in December 2009.

The Competition Commission welcomed BAA's decision. The regulator, which must approve the Stansted bidder, has not disclosed how long it has given BAA to sell Stansted. A BAA spokeswoman Monday declined to comment, saying the time frame was commercially sensitive, while a person familiar with the situation noted that the Edinburgh auction took about six months.

BAA noted that Stansted to the north of London is the city's third-busiest airport after Heathrow to the west and Gatwick, and the No. 4 in the U.K. Stansted had adjusted Ebitda of £86.6 million in 2011 and carries around 17.5 million passengers a year, BAA said.

However, in the first six months of the year, passenger growth at Stansted slipped 4.5%, according to results released by BAA (SP) Ltd., the immediate parent of BAA's two London properties, last month. About 8.2 million passengers passed through Stansted in the first half.

Edinburgh Airport in April fetched an unexpectedly high price of 16.7 times its 2011 Ebitda of £48.3 million, though Stansted is seen unlikely to command such a high multiple. Aside from victor Global Infrastructure Partners, other Edinburgh bidders had included JPMorgan Chase & Co.'s Global Real Assets vehicle, Carlyle Group and a 3i Group plc-led consortium.

Manchester Airports Group plc has already said it's interested in Stansted.

BAA, led by CEO Colin Matthews, is an affiliate of Ferrovial SA of Madrid, which on Friday agreed to sell a 10.6% stake in BAA's holding company to Qatar Holding LLC for £478 million.

Ferrovial's stake in BAA's parent will fall to 39.37% from 49.99% following the deal.

Analysts at Credit Suisse Group called the price Qatar is paying for the Ferrovial stake and another 9.4% from two other BAA shareholders impressive, noting that the value in euro terms is 10% more than its own valuation for the BAA holding company and 5.9% more than the price Ferrovial garnered in an October stake selldown.

Ferrovial led a consortium buying BAA in 2006 for £10.1 billion after a bid battle conducted at the height of the bull market.

BAA's legal team included Herbert Smith LLP litigator Nusrat Zar and competition partner Stephen Wisking.

The BAA spokeswoman said it has yet to appoint bankers to handle the Stansted auction.

For the Edinburgh sale, it used Citigroup Inc.'s Ferdinand Knapp, Manuel Falco and Philip Robert-Tissot, BNP Paribas SA, law firm McGrigors LLP, accountants at Ernst & Young LLP and management consultant LeighFisher Inc.

After selling Stansted, BAA will own Heathrow, Southampton, Aberdeen and Glasgow airports.

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