Bidders drive up price of DP World’s U.S. port assets
The U.S. port subsidiary of Dubai Ports World will fetch more than $600 million, predicted a private equity investor who has been involved in the bidding process.
DP World acquired leases to operate container terminals at six major ports as well as cargo handling businesses at several other locations on the East and Gulf coasts when it bought the global operations of London-based Peninsular and Oriental Steam Navigation Co. for $6.8 billion in March. The state-owned company agreed to divest the U.S. holdings after a firestorm erupted in Congress over lawmakers’ claims that the sale to an Arab government with possible ties to terrorism jeopardized U.S. security.
Company officials and some analysts had valued P&O Ports North America at $500 million to $700 million, based on the prorated portion of the entire P&O acquisition. DP World paid a 20 percent premium or more in the bidding war for P&O, according to analysts at the time. Early on many observers questioned whether other terminal operators or investment groups would be willing to pay an inflated price for P&O, with some saying the assets were worth about $250 million.
But DP World is likely to receive its asking price because there is so much money parked in megafunds waiting to be invested. In the past year, investment banks and private equity groups have set up funds to invest in ports, airports, highways, rail and other non-transportation infrastructure projects following the success of Australia’s Macquarie Bank and European firms in acquiring toll road concessions from cash-strapped governments. Investors are teaming with pension funds, who like the high-returns and low-risk of these long-term investments.
“Infrastructure is the flavor of the day,” said the investor, who did not want to be named because involved parties signed confidentiality agreements with Deutsche Bank, which is handling the sale for DP World.
The bids that DP World got were “staggering,” the source said. Some groups made offers several multiples above earnings and still came in $200 million short, he said.
“I don’t think it’s worth that much because they lease all their property” from port authorities, the investor said. “It’s going to go for a big number.”
The Financial Times has reported in recent weeks that a half-dozen companies, including Morgan Stanley, Carlyle Group and Seattle-based terminal operator SSA Marine, have made the cut for the final round of bidding.
In March, a Carlyle Group spokesman Chris Ullman categorically told Shipper’s NewsWire that Carlyle was not interested in buying DP World’s terminals. Even if it were, the politically well-connected investment firm might have trouble securing the deal because it has so much Arab money in its funds that it might receive intense scrutiny from Congress again.