In just a few weeks. BAA, the world’s leading airports group, has gone from predator to prey.

Less than two months ago it outmanoeuvred rivals, including Ferrovial of Spain, to win control of Budapest airport for £1.25bn – its biggest acquisition.

On Wednesday Ferrovial was back on the offensive. It startled BAA by announcing it was “currently considering” a takeover bid.

Ferrovial is not new to the UK. It already controls a 50 per cent stake in Bristol airport. The other half is held by Australia’s Macquarie, the bank some yesterday suggested as a possible partner for the Spanish group in any bid for BAA.

Ferrovial also tried to buy Exeter airport last year but withdrew its winning bid after it was referred to the Competition Commission.

Other airport deals around the world pale into insignificance, however, next to a bid for BAA.

“This is huge, this is off the scale,” says one leading investment banker active in the airports sector. “This would need a pretty sizeable consortium.”

Ferrovial said any offer would be made in cash and was “likely to be as part of a consortium”.

The investment banker suggests that previous valuations of airport deals could give BAA an enterprise value – market capitalisation plus net debt – of £13bn to £14bn.

Tuesday’s share price jump of 15 per cent, or 97½p, to a close of 752½p placed a market capitalisation on BAA of £8.1bn, a rise of £1bn on the day. The group has net debt of £5.25bn.

A bid of 800p could “be reached comfortably”, says an aviation analyst, “but to get to 850p you would need to be in a scrummage” [of competing bids].

If it bids, Ferrovial could neutralise some potential rival bidders, such as Macquarie, by bringing them inside its consortium.

BAA could prove especially vulnerable to a highly leveraged bid because, to date, it has been very conservatively financed.

Robert Crimes, analyst at JPMorgan, says in a research note: “We think Ferrovial may be able to add value from better financing” of BAA.

He says it could be possible to withdraw as much as £4.5bn of equity.

BAA has traditionally traded at a discount to its net assets. And any bidders would be paying due regard to the fact that the bulk of BAA, the three London airports, is a regulated business operated under a price cap regime set by the Civil Aviation Authority.

Regulated utilities such as the water companies are much more highly leveraged than BAA.

BAA has seven airports in the UK headed by the three London airports – Heathrow, Gatwick and Stansted – and including Southampton, Glasgow, Edinburgh and Aberdeen.

In the 12 months to the end of December, it handled 144.3m passengers, an increase of 3 per cent. And with Heathrow, BAA is the operator of Europe’s busiest airport by passenger numbers, well ahead of Paris Charles de Gaulle and Frankfurt.

BAA is also one of the biggest capital investors in the UK as it develops its key assets.

Under Mike Clasper, who joined BAA in 2001 from Procter & Gamble and took over as chief executive two-and-half years ago, the group has been consolidating its operations around its core airport development, retailing and property skills.

It has gained confidence from its success to date in developing the fifth terminal at Heathrow, a £4.2bn project that will add capacity to handle a further 30m passengers a year.

This will take Heathrow to about 90m passengers a year when T5 opens in March 2008. Construction is on time and on budget.

BAA is also engaged in preparing a £2.7bn scheme to triple capacity at Stansted airport to 76m with a second runway and second terminal.

It is now generating strong returns from its existing foreign operations led by Naples airport in Italy, where it holds a majority stake, and from its Australian ventures, where it has airport management contracts and holds strategic equity stakes at Melbourne, Perth, Launceston and Northern Territories airports.

It also has low risk retail management contracts at Boston, Pittsburgh and Baltimore airports in the US.

Attractive as these assets may be, Ferrovial must now decide on its price. And shareholders, at least, seem willing to treat with it.

“We have been long-term believers in the value of BAA’s assets and potential of the business, and look forward to engaging in constructive dialogue with relevant parties,” says David Keir, a fund manager at Scottish Widows Investment Partnership, one of BAA’s largest shareholders with 3.1 per cent.

Recent airport privatisations, where majority stakes were available, have achieved valuations of 15 to 16 times earnings.

At that level, BAA would be worth about £8bn – its current market capitalisation.

However, while that might have looked a lot yesterday morning, today it looks more like a good place to start.

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