DP World shops U.S. holdings

July 23, 2006|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

Dubai Ports World last week launched its effort to sell some of the U.S. marine terminals it controls after facing a blistering rebuke earlier this year from congressional leaders.

The state-owned Arab company agreed to find an American buyer after it was unable to sway critics that it was not a security threat. It plans to sell only the U.S. portion of the $6.8 billion global portfolio it bought in March from London-based Peninsular & Oriental Steam Navigation Co.

The company and analysts said at the time that it was sure to be a complicated effort. The U.S. port contracts had to be separated from the other assets and the financial information had to be analyzed and reworked to comply with U.S. accounting standards. Also, potential buyers had to be identified from a pool of terminal management and cargo handling companies that now are largely foreign-owned. Indeed, many of the companies operating at U.S. ports now are based elsewhere.

DP World had said it would take up to six months to identify a buyer. Four months into that time frame, the company sent a brief information sheet to prospective buyers last week. Potential buyers must adhere to a confidentiality agreement to see more detailed financial data. The newest information outlines its U.S. holdings, which includes contracts at the port of Baltimore and 22 others on the East and Gulf coasts. It said 2005 income was $39 million before taxes, interest, depreciation and amortization on revenue of $447 million.

Those figures could hamper DP World's efforts to recover its purchase price, according to analysts who said income at other ports is higher, particularly overseas. The $6.8 billion bill for the entire P&O package was the most ever paid for any port operations company and was considered pricey by many analysts.

DP World has said that the U.S. assets represented about 10 percent of the portfolio.

Spokesmen for DP World did not respond to requests for comment last week. But a statement in May said "the sale process of P&O Ports North America is proceeding as planned and they still expect to be able to agree to a sale within the six-month time frame previously indicated."

Until a sale, the company said it planned to continue running the U.S. assets under the P&O banner and leadership, based in New Jersey and not Dubai.

Like the sale price, potential buyers still are unknown. Some analysts have said there are few U.S. terminal operators large enough to afford it.

SSA Marine, based in Seattle, is the only American company among the top 10 port operators. That company has since said it would consider selling itself.

Bidders could be a mix of port operators and financial investors, experts said. The company chosen will face scrutiny from political leaders and others who complained that U.S. port operations should be run by a domestic firm.

"They will of course all have to pass the `am I American enough?' test," said Neil Davidson, research director for Drewry Shipping Consultants Ltd. in London, who said he had no specific knowledge of the sale process.

DP World employs about 427 people directly in the United States and provides work to thousands of longshoremen. In Baltimore, one of its largest operations, there are about 65 P&O managers and about 900 longshoremen. Nearly all are U.S. citizens and many have decades on the job. P&O entered several U.S. ports with its purchase of New Jersey-based ITO Corp. in 1999.

DP World has been growing quickly since 1999, when it moved beyond its role as the port authority in Dubai. It has bought other port operations in the Middle East and around the world. The P&O purchase gave it its first foothold in the booming United States-Asia trade and made it the world's third-largest port operator. The company is private and doesn't reveal its income, but it has reported that business has been growing 20 percent a year since 2001. Federal and local port officials had once suggested that the company's deep pockets could bolster security at U.S. terminals.

Baltimore port officials say nothing has changed on the piers in the past few months, where P&O manages terminal operations and cargo in Seagirt and Dundalk.

"We still have an excellent and positive working relationship" with P&O, said J.B. Hanson, a port spokesman.

Maritime experts say the spotlight is no longer shining on the ports and the fervor for security-related action also has quieted.

The U.S. panel that reviews foreign investment that was so heavily criticized for not stopping the sale also has remained largely the same, said Charlie Papavizas, an attorney specializing in the maritime industry at the Washington firm Winston & Strawn LLP.

The panel, called the Committee on Foreign Investment in the United States, recently approved a deal allowing another Dubai-owned firm to buy U.S. plants that make military equipment. But lawmakers said the overall approval process for that effort was more thorough.

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