updated 6/6/2006 5:18:10 PM ET 2006-06-06T21:18:10

BAA PLC, the world’s biggest airport operator, accepted a sweetened 10 billion pound ($19 billion) takeover bid from a consortium led by Spain’s Grupo Ferrovial SA on Tuesday, rejecting a higher offer from a group led by Goldman Sachs.

Ferrovial also confirmed that it had bought 150 million shares, or 13.9 percent of BAA, early Tuesday, adding to its holdings and bolstering its position against any rival bid.

Goldman Sachs, however, urged BAA shareholders to take no action as it is reviewing its position — suggesting the battle may not yet be over.

BAA, which had rebuffed Ferrovial’s advances since the company’s first approach four months ago, said the revised offer — valuing it at 950.25 pence ($17.79) per share — “represents an attractive price.”

The announcement followed late-night bidding between the two consortiums for BAA, which operates seven airports in Britain including London’s Heathrow, Gatwick and Stansted, a handful more in the United States and has stakes in the Naples and Budapest airports.

BAA kicked off a trend among European and Asian governments to privatize their airports in the 1980s when it took over operations in London and Scotland. Unlike the United States, where most air gateways remain government-owned, Britain has no specific rules banning foreign majority ownership of such assets and few questions about national security have been raised.

Ferrovial’s bid — made up of 935 pence ($17.49) in cash and shares and a 15.25 pence (28.52 U.S. cent) per share dividend — was lower than the 955.25 pence ($17.86) per share bid made by the consortium led by investment bank Goldman Sachs Inc.

BAA said Ferrovial’s bid had a better strategic rationale but declined to comment further.

Ferrovial has previously said it plans to keep together BAA’s portfolio of British airports, but analysts said the deal would feed into calls within the airline industry for BAA’s assets to be broken up ahead of an expected investigation by Britain’s competition watchdog.

The Office of Fair Trading revealed last week that it is considering a full inquiry into the domestic airport market. Such a probe would look at whether the current market structure, and BAA’s dominance, delivers the best value for air travelers.

BAA owns and operates airports that handle 63 percent of travelers to and from Britain, a figure that rises to 86 percent in Scotland — where BAA runs airports at Glasgow, Edinburgh and Aberdeen — and to 92 percent in London. BAA also owns Southampton Airport in southern England.

Michael O’Leary, chief executive of low-cost carrier Ryanair Holdings PLC, a key user of London’s Stansted airport, said the bid underlined the need for a breakup.

O’Leary said he hoped any new owners of BAA would make the operator more efficient and avoid over-investment in “gold-plated Taj Mahal palaces” that he says the operator is now building.

Air Canada Chairman Robert Milton said he was concerned that the higher level of debt to be taken on with the deal would mean airlines would be charged more to use BAA airports.

“It’s hard to paint a happy picture on this at this time,” Milton said at a conference in Paris.

British Airways PLC Chief Executive Willie Walsh was more positive about the deal, saying he was hopeful it would result in a third runway at Heathrow, Europe’s busiest airport.

A new fifth terminal is due to be opened at Heathrow in March 2008 to help relieve congestion, but the British government has indicated that a third runway may be required in the longer term to handle an expected increase in passengers.

BAA shares gained 2.2 percent to close at 948 pence ($17.85) on the London Stock Exchange, continuing a climb ignited by takeover speculation that has seen it gain some 45 percent since the beginning of the year.

Ferrovial confirmed talk that it had been active in the market, buying 150 million shares early Tuesday at 950.25 pence ($17.74) each.

Analysts said that would likely take Ferrovial’s entire holding over 15 percent and make it more difficult for Goldman Sachs to muscle in because it would need to acquire 90 percent of the company to be able to forcibly buy out minority shareholders.

The Takeover Panel, which administers London’s code on mergers and takeovers, agreed earlier Tuesday to a request from BAA to extend the deadline for offers for the company.

The Spanish-led coalition, which includes Canadian investment fund Caisse de Depot et Placement du Quebec and Singapore government fund GIC, must now post its offer documents by June 12, while the Goldman Sachs consortium has until June 16 to announce a firm bid or walk away.

Ferrovial first approached BAA in March with an offer valued at 810 pence per share. It lifted that to 900 pence last week, but was still rejected. The Goldman Sachs-led group made a preliminary offer of 870 pence a share in May, which BAA also dismissed.

BAA’s international business includes managing the Indianapolis airport, and retail management at Baltimore, Pittsburgh and Boston-Logan airports.

Ferrovial holds a 60 percent stake in England’s Bristol airport and 31 percent of Belfast City airport. It also manages the Sydney airport in Australia and Antofagasta airport in Chile, as well as 19 toll roads in Spain, Portugal, Ireland, Italy, Chile, Canada and the United States. It is a partner with the state of Texas in designing the $175 billion Trans-Texas Corridor railway and highway project.

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