(From Acquisitions Monthly)

British Airports Authority (BAA) is pulling out all the stops to make sure the Spanish-owned company gets top price for Gatwick Airport. BAA wants to sell London’s second-largest airport to reduce the eye-watering debts Ferrovial took on to purchase the group.

That is the Spaniards’ prime motive. After all BAA started the sales process before the Competition Commission (CC) told it that it would have to sell Gatwick, Stansted and one of either Edinburgh or Glasgow to encourage competition.

The offer prices were always destined to disappoint the vendor, since the sale was started during the worst week imaginable, on September 17, days after the bankruptcy of Lehman Brothers, which knocked any confidence out of financial markets.

Since then the economic picture has only worsened. Not surprisingly the two private equity consortia, led by Global Infrastructure Partners, owner of London City Airport, and Citi Infrastructure Partners, which has a share of Vancouver Airport, came in low.

Both apparently were fully financed by banks but that meant the offers, at around £1.2 billion, were 25 percent below Gatwick’s book value of £1.6 billion. That leaves Manchester Airport’s bid, which is only slightly better.

No wonder BAA is reluctant to recommend any of them. And with banks reluctant to extend finance any further, the vendor is finding it hard, despite its best efforts, to make the process competitive. Purchasers know that BAA is effectively a forced seller.

Now the vendor has adopted a different tack, complaining about the CC’s insistence that the assets be sold during a depressed period. The appeal will buy BAA time but little more than that.

Timing sales to maximise profit is irrelevant when implementing remedies for competition issues. BAA’s complaint does not seem to question the essential issue, of the company’s control of the London airport market.

The Gatwick under bidders have little incentive to up their offers either. Both will be in a prime position to pick up Stansted or a Scottish airport, if they don’t win Gatwick. The CC has stated that whoever wins Gatwick won’t be able to buy Stansted.

For them, playing the longer game could pay off.

–Reporting by Chris Spink