Dubai firm to shed stake in U.S. ports

Backlash led to decision

U.S. company could get deal

March 10, 2006|By GWYNETH K. SHAW AND JULIE HIRSCHFELD DAVIS | GWYNETH K. SHAW AND JULIE HIRSCHFELD DAVIS,SUN REPORTERS

WASHINGTON -- Bowing to extreme public and political pressure, a United Arab Emirates company said yesterday that it would give up its management stake in U.S. seaports, including Baltimore's, rather than continue to fight what increasingly appeared to be a lost battle.

For more than three weeks, the pending sale of British-owned Peninsular & Oriental Steam Navigation Co. to state-owned Dubai Ports World has generated controversy, splitting many congressional Republicans - especially in the House of Representatives - from President Bush, who had said repeatedly that he supported the deal.

Republican leaders told Bush at a White House meeting yesterday morning that the backlash was too extreme to overcome. Within hours, Virginia Sen. John W. Warner was on the Senate floor, announcing that DP World had decided to shed the U.S. holdings.

Warner, a Republican who helped run interference between the company, the White House and his colleagues, said the prime minister of the United Arab Emirates, Sheik Muhammad bin Rashid al Maktoum, had told the company that giving up the U.S. portion of the deal was the best course for the interests of both countries.

H. Edward Bilkey, the chief operating officer of DP World, said in a statement that "because of the strong relationship" between the United States and the United Arab Emirates, the company had decided to "transfer fully" the American operations involved in the sale to a U.S. entity. The decision, Bilkey said, is based on the assumption that the company "will not suffer economic loss" in transferring those holdings.

The company's move, however, left open a number of questions, such as who might buy the U.S. interests and what, if any, relationship would exist between DP World and an American company that takes over the holdings.

P&O runs major port operations in Baltimore, New York, New Jersey, Philadelphia, Miami and New Orleans, and has smaller stakes in seaports from Portland, Maine, to Corpus Christi, Texas. The American assets make up about 10 percent of the $6.8 billion sale, which includes operations all over the world.

The White House - which drew blistering criticism because an administration panel decided that the sale had no potential national security implications - greeted the news with relief, saying that the divestiture provides "a way forward" and clears the way for Bush to move on to "other important priorities."

But DP World's move was a decidedly mixed blessing for Bush. It appears to have spared him an embarrassing and potentially drawn-out public tug of war with his party over national security, the issue that is supposed to be Republicans' strong suit. The episode left Bush stung by congressional disdain, his influence diminished by the speed and decisiveness with which lawmakers were willing to rebuke him.

Bush administration officials played down yesterday's confrontation with congressional Republicans. But aides to the Republican leaders said they made it clear to the president that he had backed himself into a corner on the port deal and that there was nothing they could to do stop the momentum in Congress for killing it.

"There was something of a sense of checkmate," said a senior aide to one of the participants.

After DP World's announcement, lawmakers who had fought the deal declared the move a positive development, though some said they needed to see the details behind the announcement before they could be completely satisfied.

Rep. Peter T. King, a New York Republican and leading critic of the deal, said that if DP World plans to divest itself completely of its interests in U.S. ports, "as of today, this is an absolute victory for the American people."

King, who had pushed for a more in-depth, 45-day review of the transaction by the Committee for Foreign Investment in the United States, which initially signed off on it, said there was little reason to keep fighting for legislation to block the deal if DP World's offer proves genuine.

Others were more cautious, saying that it was up to DP World to prove that the transfer would go to an independent company and not a subsidiary.

"We now smell the scent of victory," said Sen. Charles E. Schumer, a New York Democrat. But "the devil is in the details," he added. "We need to make sure that all U.S. operations are totally removed from the United Arab Emirates and Dubai Ports World control."

In Maryland, where the DP World deal enveloped the race for governor, Baltimore Mayor Martin O'Malley and Montgomery County Executive Douglas M. Duncan, both Democrats, said they welcomed the chance to focus on the broader issue of port security. Republican Gov. Robert L. Ehrlich Jr. said the outcome of the deal and Congress' persistence in opposing it was not a surprise.

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