A broker's note from Merrill Lynch suggested a bidder could sell non-core assets like World Duty Free and the Airport Property Partnership, 50/50 joint venture with Morley Fund Management. Last year the euro 1.2-billion ($1.4-billion) APP was set up as the UK's largest airport-related property fund.
APP, mainly cargo warehousing and offices, has a net book value of about euro 917.81 billion ($1 billion). Since its inception in 2005, APP has pursued a strategy of selective acquisitions, disposals and development of property at UK airports.
The first priority for BAA, though, is what to do about its euro 2.91-billion ($2.39-billion) bond issue launched last week. The announcement by Ferrovial surprised the market and sent BAA shares soaring by 15% but pushed bonds sharply lower. Standard & Poor's, the credit rating agency, said it was likely to put BAA on credit watch if a formal bid emerged.
BAA sold euro 2.91 billion ($2.39 billion) of bonds denominated in euros and sterling last Thursday. Because BAA was not seen as a likely takeover target, the bonds were sold without any change of control covenants that would force the company to buy back the bonds if it was taken over.
But the issue does not officially settle until next week, which means the terms can still be changed. Investors are forming a pressure group to get the company to do so. One suggestion is to include a change-of-control clause. This would increase the immediate financing needs of a potential bidder by euro 2.91 billion ($2.39 billion) and so could act as a poison pill.
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