Manchester Withdrawal Clouds Gatwick Sale

Manchester Airports Group (MAG), the last bidder in active discussions to buy London's Gatwick Airport from Ferrovial unit BAA, has walked away over price disagreements, a person familiar with the matter said.

The long-running sale of Britain's second-busiest airport had once sought to raise more than GBP2 billion pounds (USD$3.28 billion), but the process has been hamstrung by scarce credit and decreasing passenger numbers.

MAG, which was working with Canada's Borealis and the Greater Manchester Pension Fund, would not raise its bid to the GBP1.5 billion sought by BAA, but remains interested in the asset, the person said.

A second person familiar with the matter said rival bidder Global Infrastructure Partners (GIP), the London City Airport owner whose bid was rejected in May, also remains interested but is not in active discussions over a sale.

A third person said BAA, which is majority owned by Ferrovial, was still talking to both parties.

MAG had sweetened its offer for the airport by including mechanisms such as earn-out agreements, but the cash value of its proposal was about GBP1.38 billion (USD$2.26 billion), the first person said on Thursday.

"We pulled out of the process. The only thing that will make us come back is if BAA has a radical rethink on what Gatwick is worth and there's no sign of that," the person said.

The Manchester group had also rejigged its proposal by cutting the debt proportion by more than GBP100 million to just over GBP600 million, in order to garner a solid BBB+ credit rating, the person said.

Earn-out agreements mean a vendor receives extra payments if an asset hits specified performance targets, and can be used to bridge valuation disagreements between buyers and sellers.

BAA is appealing a Competition Commission order that it sell Gatwick and two other airports within two years. An appeal tribunal will hear its case from October 19.