LONDON/AMSTERDAM Spain's Grupo Ferrovial, under pressure to reduce its dominance in UK airports, has agreed to sell London's Gatwick for a smaller-than-expected 1.51 billion pounds to a consortium involving Credit Suisse and General Electric.
Ferrovial said on Wednesday that it expected to make a capital loss of around 142 million euros ($212.6 million) against its consolidated earnings following the sale by airport operator BAA, majority owned by the Spanish group.
It comes three years after it paid 10.1 billion pounds for BAA, which operates seven UK airports as well as international operations.
Buying Gatwick, London's second-busiest airport, is Global Infrastructure Partners (GIP), a consortium which already owns London City Airport.
Ferrovial put Gatwick up for sale last year after UK authorities said the company should reduce its UK airport portfolio, though BAA is currently appealing a Competition Commission ruling ordering it to sell Gatwick and two other airports, alleging that the decision was biased.
BAA's lawyer Nicholas Green opened his final remarks on the third day of the appeals tribunal on Wednesday by pointing to Gatwick's sale and arguing that it demonstrates that the airport operator has already made an important concession.
"The sale price was lower than the regulated asset base (RAB), a sale would be expected to be at a premium to RAB, it is not here," he said.
BAA anounced a sale price lower than the airport's 1.57 billion pound RAB value but higher than offers BAA received from bidders before the summer.
Analysts said that after taking into account BAA's selling costs, the deal could represent a discount of up to 14 percent of the RAB.
The tribunal is expected to rule in about two months' time.
"Head-to-head competition with Heathrow will be limited but a more focussed approach on Gatwick will help to attract passengers," said GIP partner Michael McGhee.
"The upgrade of facilities to make it more pleasant in terms of an experience, that's a bit of a longer haul," he said, adding that some of the improvements could be done within two to five years.
The deal will be closely watched by governments looking to sell airports across Europe, including those in Lisbon and Prague, after the financial crisis forced many to shelve privatisations as asset values fell.
Ferrovial shares closed down 2.34 percent at 33.01 euros.
COMPETITION, DEBT PRESSURES
The UK's Competition Commission has ordered BAA to sell Gatwick, Stansted and either Edinburgh or Glasgow airports.
BAA moved quickly to launch the sale of Gatwick early to ensure it would not have to put more than one of its major airports on the market at the same time, a source close to the firm said. The person said that it was also reacting to negative public opinion of its dominance over London's airports.
"I would be surprised if Stansted isn't under someone else's ownership by the end of next year," said a source that was involved in the Gatwick sale process.
Highly leveraged BAA, which reported net debt of 9.7 billion pounds last June, said it would use the sale's proceeds to pay back some of its debt.
Most pressing for BAA is a 1 billion pound debt maturity in March 2010. It can make this payment without selling Gatwick, but analysts at Fitch Ratings have said extra funds are needed to repay a second 1 billion pound debt maturity due in March 2011.
"This is a first step in the deleveraging of Gatwick airport made at a price that stands above consensus numbers conveyed in the press for quite sometime," Banco BPI analysts said in a note.
BAA, advised by HSBC and Royal Bank of Scotland on the deal, said 55 million pounds of the sale price was conditional on future traffic performance and GIP's future capital structure.
GIP secured a 1.125 billion pounds loan for the acquisition from a group of 12 banks..
(Additional reporting by Paul Day in Madrid and Simon Meads and Tom Freke in London, editing by Elaine Hardcastle, Jason Neely, Karen Foster and Hans Peters)