All buyers are not created equal, at least in the UK Competition Commission’s eyes.
The antitrust watchdog has set out some very strict criteria for any potential buyer of BAA’s assets today, after confirming the airports company, bought by Spain’s Ferrovial for £10bn in a debt-funded deal in 2006, will have to sell Gatwick and Stansted airports in London, and Edinburgh airport in Scotland.
From the CC report published today (emphasis ours):
BAA argued that there was no basis for additional criteria to be applied in this case, since our provisional findings made it clear that separate ownership alone would be sufficient to drive the competitive process, rather than competition being dependent in some way on the particular attributes of the separate owners or additional safeguards. BAA was also concerned that additional criteria would also create risks for the divestiture process by unduly narrowing the field of potential purchasers.
But, not just anyone, it seems, can run an airport. The CC itself is lobbying for the following criteria:
a) Independence from BAA and ADI/Ferrovial – A purchaser’s independence from BAA should not be impaired by major operational dependencies (eg IT) other than in a transitional form. Existence of significant economic relationships with the Ferrovial consortium or any of its members would be a major area of concern but would be subject to assessment on a case by case basis regarding the extent of influence.
b) Appropriate expertise – If a purchaser operates other well-regarded comparable airports then prima facie, we will interpret this as providing strong evidence that the purchaser possesses appropriate expertise. If a purchaser does not operate such other airports with a similar reputation, then we will need to be provided with persuasive evidence regarding its access to expertise and ability to provide a management team with comprehensive experience of operating airports.
(c) Appropriate financial resources - A purchaser should have access to sufficient financial resources to acquire, develop and operate the airport concerned. This should be evidenced by robust long-term financial projections and sufficient head room in finance facilities or capacity to raise capital to cope with significant adverse sensitivities.15 In the case of Stansted we would expect a purchaser to have the capability to fund the development of SG2.
(d) Absence of further competitive concerns – A purchaser should not have significant horizontal overlaps with the airport to be acquired. Vertical issues, such as the involvement of airlines in purchaser consortia, will be reviewed on a case by case basis. In principle, we welcome any structure that would deliver a customer-focused approach to the management of the airport. However, we would be concerned if an airline’s economic involvement in a consortium could result in exclusionary behaviour towards its competitors, although we recognize that such issues would be limited if the airlines had limited ownership and voting rights and there were appropriate controls in place. We note that, in any event, the divestiture will be subject to normal merger control procedures.
In other words, Virgin’s proposal to buy Gatwick may face some regulatory hurdles. Other airport operators who’ve thrown their hat into the ring, such as Hochtief and Fraport, would stand a good chance based on the criteria above. For pension funds being advised by airport operators, like the Ontario Teachers and Canada Pension Plan with Macquarie, it’s less clear. Ditto for London City Airport owner, Global Infrastructure Partners, whose London airport could be seen to overlap with either Gatwick or Stansted.
As for Ferrovial, current — optimistic — estimates for Gatwick’s price put it at something like £2bn pounds. FT Alphaville thinks it’s likely to be less than that as the recession and airline bankruptcies eat into passenger numbers (Collins Stewart’s Andrew Fitchie has put it at £1.7bn for those reasons). At the least, a sale would allow Ferrovial to pay down some of its debt — if not help its pride.
Related links:
BAA airports market investigation – Competition Commission
(Another deal of the day): London Gatwick - FT Alphaville
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