Case Study

Financial strategy at BAA plc (A)

11 pages
October 2010
Reference: IMD-1-0293

Grupo Ferrovial from Spain acquired BAA PLC, the UK airport operator, in June 2006 following one of the most interesting battles for control in recent years in Europe. BAA was an extremely successful and profitable company, managing Heathrow and Gatwick airports in London, among others. The A case, Financial Strategy at BAA PLC, discusses the structure of the target company and specifically its capital structure. BAA’s asset base was very stable, low risk and very well protected from competition. The firm had been generating substantial cash flows over the past few years and had completed some acquisitions at home and abroad. Yet, it was underleveraged, not only according to the simple capital structure theory but also compared to its peers. Therefore, Grupo Ferrovial (and Goldman Sachs, which was competing to acquire BAA) found a great value opportunity by leveraging up BAA’s assets. The B case, Ferrovial Conquers the UK, guides us through the acquisition process and in particular through the financing aspects of the deal. The BAA–Ferrovial Acquisition received the Finance Package of the Year Award by Acquisitions Monthly Magazine. The deal was the largest infrastructure acquisition financing ever undertaken in the debt markets; it contained the largest second lien tranche ever, which maximized liquidity, tapping interest among both banks and fund investors; and had a groundbreaking structure designed potentially to survive a whole-business securitization.

Learning Objective

The case can be used with a broad range of audiences and provides opportunities to discuss the basics of capital structure and financial policy; to describe the functioning of debt markets; to follow a complex acquisition that went from hostile to friendly; to discuss syndication in the credit markets; and to analyze the challenges that CFOs face in order to balance the threat of acquisitions with the need for a conservative capital structure. It can be used in a basic finance course to introduce capital structure and debt financing. It can also be used with finance teams and with executives in general as a way to discuss the complex terms of the transaction.

Keywords
Capital Structure, Debt Financing, Financial Strategy, Financial Policy, Finance
Settings
United Kingdom
Grupo Ferrovial (Old name), BAA Plc (Old name)
2005-2006
Type
Published Sources
Copyright
© 2010
Available Languages
English
Related material
Teaching note
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This case study is part of a series
  • Ferrovial conquers the UK: Following in the steps of Philip II (B)
  • Financial strategy at BAA plc (A)
This case study is part of a series
  • Ferrovial conquers the UK: Following in the steps of Philip II (B)
  • Financial strategy at BAA plc (A)
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Ferrovial conquers the UK: Following in the steps of Philip II (B)
By Arturo Bris and Sophie Linguri Coughlan
Case reference: IMD-1-0294 ©2010
Summary
Grupo Ferrovial from Spain acquired BAA PLC, the UK airport operator, in June 2006 following one of the most interesting battles for control in rec...
Reference IMD-1-0294
Copyright ©2010
Copyright owner IMD Copyright
Organization Grupo Ferrovial (Old name), BAA Plc (Old name)
Available Languages English
Contact

Research Information & Knowledge Hub for additional information on IMD publications

Financial strategy at BAA plc (A)
By Arturo Bris and Sophie Linguri Coughlan
Case reference: IMD-1-0293 ©2010
Summary
Grupo Ferrovial from Spain acquired BAA PLC, the UK airport operator, in June 2006 following one of the most interesting battles for control in rec...
Reference IMD-1-0293
Copyright ©2010
Copyright owner IMD Copyright
Organization Grupo Ferrovial (Old name), BAA Plc (Old name)
Available Languages English
Contact

Research Information & Knowledge Hub for additional information on IMD publications