Battle For Edinburgh Airport Set For Take Off

January 5, 2012

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A bid battle for Scotland's biggest airport is poised to break out with the owner of London's Gatwick Airport seen as an early frontrunner in a sale expected to fetch about USD$900 million for Spanish owner Ferrovial.

Global Infrastructure Partners (GIP), which bought Gatwick from Ferrovial in 2009, has made no secret of its interest in Edinburgh airport and has hired Royal Bank of Scotland to advise on a bid.

However, banking sources said it could face competition from the infrastructure arms of private equity firms in Britain and the United States, as well as the owners of airports in Germany, France and Canada.

The sale of Edinburgh Airport, which handles around nine million passengers a year, is part of a long-running drive by Britain's competition regulator to weaken the dominance of airports group BAA, which was bought by Ferrovial in 2006.

Last October, the Competition Commission ordered BAA to sell Edinburgh or Glasgow airport in Scotland before then selling Stansted Airport in the south east of England. It had previously demanded the sale of Gatwick.

The regulatory crackdown has been a major headache for Ferrovial.

When it bought BAA for GBP£10.3 billion (USD$16 billion) in a highly-leveraged deal, it planned to keep all of the British firm's airports and make them more efficient by outsourcing services and improving procurement. Instead, it has been forced to sell assets at a time when valuations are lower than when it bought the British business.

Late last year, Ferrovial sold a 5.88 percent stake in BAA in a deal which allowed it to remove BAA's debts from its balance sheet but which valued the British business at just GBP£4.8 billion.

BAA currently owns London's Heathrow, Europe's busiest airport, as well as Southampton and Stansted in England and Glasgow, Edinburgh and Aberdeen airports in Scotland.


"Indicative offers will be expected by the end of February and the second phase short list, where the successful parties are given full access to due diligence, will be made a couple of months later," one source close to the auction said.

BNP Paribas and Citigroup, who are advising Ferrovial on the sale, will send detailed information about the airport to interested parties next week, another source with knowledge of events said. Ferrovial wants the sale completed by the end of summer 2012.

Analysts believe Edinburgh airport could fetch between GBP£400 million and GBP£600 million.

"The base valuation is around GBP£450 million. That's likely to be a starting point for bids," one of the sources said. "Closing a deal by the end of this summer sounds reasonable unless the market outlook deteriorates considerably."

Some industry analysts believe the airport could get GBP£600 million given the prices that European airport assets have sold for in the last two years.

Ferrovial's sale of the 5.88 percent stake in BAA was completed at an enterprise value (equity plus debt) of 13.2 times earnings before interest, taxes, depreciation and amortisation (EBITDA), while BAA sold its interest in Naples airport at 13.3 times in 2010.

"If we value Edinburgh at 13.3 times expected 2012 EV/EBITDA, in line with where recent similar transactions that have taken place we get an implied enterprise value of GBP£605 million," said RBC Capital Markets analyst Olivia Peters.

"We expect that competition will be high for this asset and BAA should be able to achieve a multiple above 13 times 2012 expected EV/EBITDA which could potentially act as a share price driver for Ferrovial."

Ferrovial's shares are trading at less than half the value of the 20.74-euro peak they achieved in 2007.


RBS, which was approached to advise on bids by several interested parties, chose to represent GIP because it sees it as the most likely winner, a source close to the matter said.

GIP won a battle for London's Gatwick airport with a bid of GBP£1.5 billion in 2009.

However, it is likely to face competition as the infrastructure units of private equity firms in Britain and the United States are leading consortia to buy Edinburgh airport, according to a banker close to the companies.

The infrastructure division of British private equity group 3i is working on a bid with fund manager M&G and Universities Superannuation Scheme, a British pension fund investor. US private equity firm Carlyle Group has also formed a consortium with prominent Scottish tycoons Brian Souter and Angus Grossart, the banker said.

Banking sources say interest could also come from Frankfurt airport owner Fraport, Turkish operator TAV, Aeroports de Paris, which owns Paris' Charles de Gaulle airport, and Canada's Borealis Infrastructure and YVRAS, the owner of Vancouver airport.

Possible British bidders include the Manchester Airport Group, Arcus Infrastructure Partners and Peel Holdings.

One source close to the deal said the decision on the sale would likely be value based and that companies already running an airport would not be favoured over non-operators.