McLean's - American Shipper

TRANSPORT / PORTSEller’s suit and tentatively approved thecontract between P&O and DP World. OnMarch 6, the court declined to hear an appealby Eller, clearing the way for the dealto be finalized two days later.On March 8, the House AppropriationsCommittee sent a resounding message toPresident Bush, voting 62-2 to block thedeal. The bill was attached to an emergencyspending bill for Iraq military efforts andKatrina recovery to make it politically difficultfor Bush to veto.Business groups were slow to rise to thedefense of the Dubai Ports World deal. OnMarch 9, the U.S. Council for InternationalBusiness and the U.S. Chamber of Commerceasked Congress to give the administrationtime to complete its security reviewso that foreign investors are not spooked bya perception that the investment process hasbeen politicized.By then, it was too late. Sen. John Warner,R-Va., one of the few legislators whosupported the transaction, went to the floorof the Senate March 9 to read a statementfrom DP World that it was throwing in thetowel and divesting its interest in the U.S.port properties.“DP World will transfer fully the U.S.operations of P&O Ports North America Inc.to a United States entity,” the statement said.“This decision is based on an understandingthat DP World will have time to effect thetransfer in an orderly fashion and that DPWorld will not suffer economic loss.”But the story did not end there. DP Worldwas vague about whether it would actuallysell the U.S. business to an Americancompany, or whether the U.S. governmentwould have to make DP World whole. It alsodidn’t rule out the possibility of owning aU.S.-managed and based company.In fact, P&O Ports North America hadoperated as a U.S. subsidiary, with a separateboard of directors, and DP World hadalways stated it intended to maintain thesame structure.“I assumed they would manage us likethe old owners,” P&O’s Scavone said. TheNorth American subsidiary, based in NewJersey, handled day-to-day operations andsent its reports and requests for capital to theLondon headquarters. In turn it benefitedfrom centralized resources in areas suchas information technology, payroll and accountingand security expertise.“That’s the way an international terminalcompany works. It was always my understandingthat was never going to change,”Scavone said.Many observers interpreted DP World’saction as an effort to remove itself as apolitical lightning rod while still trying toretain its rights as a passive investor.82 AMERICAN SHIPPER: APRIL 2006On March 15, DP World cleared up some ofthe suspense and said it plans to sell the U.S.facilities within four to six months to an “unrelatedU.S. buyer.” The company’s financialadvisor, Deutsche Bank, is running a formalprocess to solicit and evaluate bids.Still unclear, however, is whether the U.S.government will be the buyer of last resortor help finance a deal. DP World has saidany sale must ensure that it doesn’t losemoney from its recent transaction. Companyofficials and analysts have placed the valueThe mainstream press andCongress gradually learnedthrough the Dubai PortsWorld political drama that foreigncompanies control operations in about 75percent of U.S. port terminals, and thatsome of those companies are actuallyowned by foreign governments, suchas Singapore, China and Taiwan.That led to several pieces of legislationto restrict foreign ownershipof port facilities and other types ofinfrastructure.The only significant American terminaloperators are Seattle-based SSA Marine,Maher Terminals at the Port of New Jersey,and Marine Terminals Corp. on the WestCoast. CSX Corp., which owns a major U.S.railroad, sold its marine terminals in China,Germany, Australia and South America to DPWorld for $1.1 billion in early 2005. It did notown terminals in the United States.Democratic Sens. Hillary Clinton of NewYork and Robert Menendez of New Jersey,who represent the Portof New York-New Jersey,introduced a billto prohibit companiesowned or controlled byforeign governmentsfrom purchasing portoperations. The billincludes a provisionrequiring the executiveSurprise! U.S. portsare foreign-ownedIt was news to Congress, and Capitol Hill is respondingwith efforts to end foreign ownership of U.S. infrastructure.Clintonbranch to conduct a study on existing foreigngovernment-owned companies operating inU.S. ports, and makes recommendations toCongress on how to handle any resultingnational security risks within 30 days.“We wouldn’t turn the border patrol or theof P&O Ports North America at about $700million, based on the sale price of the parentcompany and the fact that U.S. operationsonly accounted for about 6 to 10 percent ofits profits. It is unclear if other bidders willreadily accept the 20 percent premium analystssay DP World paid to win the bid.As for Eller, a British High Court saidit will have to pay P&O’s court costs forbringing a nuisance suit without foundation.P&O officials said their legal bill totaled$400,000 to $500,000.customs service over to a foreign government,and we can’t afford to turn our ports over toone either,” Menendez said in a statement.A bill introduced by Sen. Frank Lautenberg,D-N.J., sought to give portauthorities the power to protectthemselves by terminatingany lease when they canshow that transfer of terminalownership wouldaffect the security of theport. It would also requirethe Department HomelandSecurity to review any change inownership of a terminal operator for securityproblems.In the House, Rep. Duncan Hunter, R-Calif., authored a bill that would go evenfurther and require foreign companies thatown infrastructure such as airports, powerplants, tunnels, and terminals to sell it to anAmerican company if the Defense Departmentdetermines it is critical to nationalsecurity. The company would have to be 51percent U.S.-owned and have its chairman,chief executive and other top executives beAmerican citizens.Such a law, if passed, could bring additionalscrutiny to companies such as Suez, aFrench company that owns plants in 17 statesthat provides drinking water to 7 millionAmericans, and CITGO, which is controlledby the government of Venezuela and its anti-American dictator, Hugo Chavez. CITGO hasterminals and refineries in several states.Many of these bills moved forward in Congresseven after Dubai Ports World announcedits intention to divest its U.S. assets.But several authorities on national securitybelieve the United States already has