IMD-1-0293 © 2010
Bris, Arturo; Coughlan, Sophie
Grupo Ferrovial from Spain got BAA PLC, the united kingdom airport operator, in June 2006 following one of the most interesting fights for control recently in Europe. BAA was an incredibly successful and profitable business, handling Heathrow and Gatwick airports in London, amongst others. The A case, Financial Strategy at BAA PLC, discusses the arrangement of the target company and especially its capital structure. BAA’s strength base was quite secure, low risk and very well protected from competition. The firm had completed some acquisitions at home and abroad and had been creating significant cash flows over recent years. Yet, it was underleveraged, not only according to the capital structure theory that is simple but compared to its peers. Thus, Grupo Ferrovial (and Goldman Sachs, which was competing to get BAA) found an excellent worth chance by leveraging up BAA’s assets. The B case, Ferrovial Conquers the UK, direct us through the acquisition process and in particular through the funding aspects of the deal.
Learning objectives: The case may be properly used with a wide array of audiences and provides opportunities to go over the basics of capital structure and fiscal policy; to describe the function 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 to be able to balance the risk 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. Additionally, it may be utilized as a means to discuss with executives in general and with finance teams the complicated conditions of the trade.
Subjects: Capital structure; Debt financing; Debt markets; Complex acquisitions; Infrastructure acquisition financing; Financial strategy; Financial policy
Settings: United Kingdom; Worldwide ; Airport operator ; 2005 revenues of £2.2 billion; 15,000 employees globally ; 2005-2006
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