McLean's - American Shipper

How did a well-publicized international mergerbetween two port operators go unnoticed for almostthree months until the 11th hour, only to betorched by a wildfire of opposition in the United States overconcerns that an Arab company owned by the governmentof Dubai posed a threat to national security?The tinder for a conflagration existed in the form of Americanpost-Sept. 11, 2001 anxiety about Middle Eastern terroristsstriking again, economic patriotism and thegovernment’s incremental approach to improvingsecurity for ports widely consideredvulnerable to smuggling of weapons or adirect attack via a container or vessel.But it would take someone to light thefuse and set off the political fireworks, asAmericans reacted to the perception thattheir ports and security were being handed toa foreign government with ties or sympathyto Al Qaeda terrorists.The demise of Dubai Ports World’s effortto gain control of several U.S. port terminalscan be traced back to a little Florida companythat felt left out when two big boys inthe port management business decided tomerge without giving it a chance to buy outits joint venture partner in Miami.Fort Lauderdale-based Eller & Co. is aterminal operator that specializes in contractstevedoring and agency activities inFlorida’s Port Everglades, Tampa, Miamiand Port Canaveral. Terminal owners hirecompanies like Eller to load and unloadvessels and provide special logistics servicesfor ship crews and cargo. Eller subsidiaryContinental Stevedoring & Terminals is aminority partner with P&O Ports NorthAmerica in the Port of Miami TerminalOperating Co. (POMTOC), one of threemain terminals at the port.P&O owns 50 percent of the company,with the other half split between Eller andFlorida Stevedoring. Eller ITO, a 50-50 jointventure between Eller and P&O, contractswith the longshoreman’s union to providecargo handling for POMTOC and otherterminals in the port.Eller officials were furious when venerableBritish ports operator Peninsular andOriental (P&O) Steam Navigation Co.announced last November that it would beacquired by the government of Dubai, eventhough Eller lacked the resources to buy thecompany. Eller had ambitions of increasingits stake in the public terminal it co-ownedwith P&O Ports.P&O officials contend that Eller doesn’thave a right of first refusal in POMTOCbecause the POMTOC partner, P&O PortsFlorida, is not selling its stake. Joint ventureagreements often have provisions that allowmembers to match the price if one of thepartners receives an offer for its share. P&Oinsists that any changes in the parent companydo not affect the subsidiary’s stake in POM-TOC, because P&O Ports Florida would justcarry over to the new owner and retain its 50percent share. The corporate documents donot grant the partners buyout rights whenthe parent company several subsidiaries upthe chain changes hands, said Robert Scavone,executive vicepresident, P&O PortsNorth America, in aninterview.Furthermore, P&Owas not interested inselling its propertiesin piecemeal fashion,and few companiesin the world had theScavoneresources to finance a multibillion-dollartakeover of the company in one bite. The additionof P&O’s 29 terminals in 18 countriesvaulted DP World to the number three spotamong global terminal operators, with a totalthroughput of 33.3 million TEUs.The debate over the port sale centered onP&O’s container terminals located in sixmajor ports: New York (cruise terminal) andNew Jersey (a half-share), Philadelphia, Baltimore,Miami and New Orleans. P&O PortsNorth America actually operates 22 facilitiesin U.S. ports handling bulk, breakbulk androll-on/roll-off cargo in places such as PortArthur and Freeport, Texas; Baton Rouge,La.; and Gulfport, Miss. P&O also handlescontainers at the Port of Houston and has acontainer joint venture in Norfolk, Va.In January, P&O signed a long-term leaseto operate terminals at the Port of Tampa,including the recently completed HookerContainer Terminal. The deal was madepossible after a U.S. company, SeattlebasedSSA Marine, agreed to terminate itsconcession agreement for terminal spaceand stevedoring services, according to theTampa Port Authority.P&O also renewed a contract with theDefense Department to load and unloadmilitary equipment at the ports of Beaumontand Corpus Christi, Texas.A bidding war briefly erupted when theSingapore government’s terminal operatingcompany PSA International placed a rivalbid for P&O, forcing DP World to up its offerfrom $5.7 billion to $6.8 billion.Representatives for Eller claim the DPWorld takeover was negotiated in the darkwithout a formal bid solicitation process,but the company had the same opportunityas PSA to counter DP World’s offer afterthe fact.Eller had little recourse to stop the deal,although it tried to do so without successin a British court.So it lit the political match, sparking theinferno that engulfed Dubai Ports World.Eller’s Strategy. A lot of activity tookplace behind the scenes before the sale ofport facilities to the Dubai governmentRoadmap to support: Washington lobbyist Joseph Muldoon III took amap of P&O Ports North America’s U.S. port facilities and targetedlawmakers who represent those ports.AMERICAN SHIPPER: APRIL 2006 77