GIP grabs Gatwick for £1.5bn

BAA has agreed to sell the UK’s second largest airport, ending months of negotiations. Rival bids from syndicates featuring Borealis and Citi were trumped by GIP, which reportedly secured more than £1bn in debt financing.

Global Infrastructure Partners will add a second London airport to its portfolio with the purchase of Gatwick Airport for just under £1.5 billion (€1.6 billion; $2.4 billion) on a cash-free, debt-free basis.

A New York-based spokesperson for the private equity firm declined to say how much equity will be used to finance the deal. Anonymous “banking sources in London” told Reuters that GIP had arranged a £1.125 billion loan.

A syndicate of banks featuring Banco Santander, Credit Suisse, JPMorgan and Royal Bank of Canada are financial advisors to the buyer, according to a statement.

The agreement to purchase 100 percent of the UK's second-largest airport ends more than a year of speculation as to whom and for how much the asset would be sold. The vendor, BAA Airports, put the airport up for sale last year after Britain’s Competition Commission forced BAA’s parent, Ferrovial, to restructure and dispose of certain assets. At the time, regulators had valued Gatwick at around £1.8 billion, but analysts were estimating a potential deal would fetch as much as £3 billion.

Gatwick: GIP checks in

Since the Spanish airport operator was forced to put the asset in play, interested parties and bidders have included the Canada Pension Plan Investment Board; Manchester Airport Group in conjunction with Borealis, the infrastructure investment arm of the Ontario Municipal Employees' Retirement System; and Lysander Gatwick Investment, a syndicate comprising Citi Infrastructure Investors, Vancouver Airport Services and John Hancock Life Insurance. 

BAA is expected to sell two more UK airports, including London's Stansted, though it is presently pursuing a formal complaint about the commission’s ruling forcing it to do so.

Gatwick is the sixth largest airport in Europe, handling more than 35 million passengers per year and 134,000 tonnes of air cargo, according to figures released by Ferrovial in September 2008.

For GIP, the deal is a landmark acquisition that took months to secure. The firm, which is run by chairman and managing partner Adebayo Ogunlesi, has agreed to paying an additional £55 million on a deferred basis, provided certain performance targets are being met.

London-based partner Michael McGhee led the transaction, which is expected to close in December 2009. It is subject to certain regulatory approvals, including merger clearance from the European Union, given the firm's 75 percent interest in London City Airport. GIP purchased AIG’s remaining stake in City Airport last year, reportedly paying £250 million.

Both airports will be part of the portfolio for GIP's debut fund, closed on $5.6 billion in May 2008. GIP is backed by Credit Suisse and General Electric.