Ferrovial’s BAA bid remains unaffected by EC clampdown

The European Commission’s demand that Spain repeal rules providing Spanish
companies with a tax relief when making acquisitions abroad will not scupper
Ferrovial Gruppo’s £8.75bn offer for BAA.

Ferrovial’s bid for BAA is the latest by a Spanish company for a UK business,
after Telefonica acquired O2 and Banco Santander bought out Abbey.

All the deals benefited from the tax relief which allows a percentage of
goodwill amortisation to be set against tax in foreign deals. But last week, the
EC announced that the relief equated to state aid and demanded that Spain begin
phasing out the tax incentive.

The move has not come in time to impact on Ferrovial’s plans, however, as
Spain is only required to begin closing down the relief from 2007.

The takeover panel has given Ferrovial until 24 April to put in a final bid
for BAA after its original offer of 810p per share was rejected by the BAA
board. The tax relief on M&A has been a key part of Ferrovial’s bid.
Investment bank Morgan Stanley has estimated the relief could provide the
Spanish infrastructure group with an additional £850m in firepower.

The EC has said that Spain needs to have the incentive completely eliminated
by the end of 2010.

The EC has demanded that by the start of 2007 the tax credit is reduced from
25% to 12%. Spain will then have to cut the relief by a further 3% every year
until it is completely phased out.

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