Global Infrastructure Partners, owner of London's City and Gatwick airports, is to buy Ferrovial-owned BAA's Edinburgh airport for 807 million pounds, cementing its position as a leading British airport operator.
GIP, an investment fund founded by Credit Suisse and General Electric, beat off a consortium led by JP Morgan Asset Management's infrastructure fund.
Earlier on Monday two sources close to the sale process told Reuters that GIP had won the auction after agreeing a price in the region of 800 million pounds.
The sale price is payable in full at closing of the deal, expected in May, said BAA.
Edinburgh Airport is a high quality infrastructure asset, said Adebayo Ogunlesi, chairman and managing partner of GIP.
We see significant opportunity to apply our tested and successful operational expertise and our knowledge of the global airports sector to develop and enhance the performance of Edinburgh Airport in years to come.
GIP wants to add new routes and speed up check-in, security and baggage-handling at the airport.
BAA last year chose to sell Edinburgh airport after Britain's Competition Commission ordered it to dispose of one of its Scottish airports as part of a drive to loosen the firm's grip on the British airport market.
BAA has also been ordered to sell London Stansted, leaving it with the capital's main Heathrow hub, Southampton in the south of England and Glasgow and Aberdeen airports in Scotland.
Edinburgh airport, which serves more than 40 airlines and 100 destinations, handled 9.3 million passengers in 2011, generating earnings of 48.3 million pounds.
GIP has paid a premium because this type of infrastructure asset doesn't come up that often and while the seller will be pleased with the price GIP has expanded its portfolio with an airport full of growth potential, said an analyst who did not want to be identified.
Ferrovial shares in Madrid were 1.3 percent down at 8.11 euros by 1515 GMT, valuing the group at around 6 billion euros.
The Competition Commission also required BAA to sell Gatwick, which GIP bought for 1.5 billion pounds in 2009, to increase competition among airports in south-east England.
JP Morgan Asset Management led a consortium including Incheon, South Korea's airport authority and U.S. teachers' pension fund TIAA-Cref. However, TIAA-Cref pulled out earlier this month, denting its chances.
Consortia led by Carlyle Group and 3i were knocked out of the bidding last month.
($1 = 0.6205 British pounds)
(Editing by Sarah Young and Helen Massy-Beresford)