Dubai Ports Buys P&O

The Peninsula and Oriental Steam Company was born in 1837, the year Queen Victoria ascended the British throne. Its three divisions (ferries, ports and logistics) make up the fourth largest port group in the world. Yesterday, it accepted an offer from DP World of Dubai valued at £3.19 billion. While it marks the end of the company as an independent entity, DP World will continue to operate it as a separate entity, a case of leaving well-enough alone.

DP World is owned by the government of Dubai, an oil sheikdom with lots of cash. As in the 1980s, the petroleum producing nations have a problem in recycling their money. Unlike the 1980s, Dubai has decided not to fritter it away in western banks (which ultimately made a lot of bad loans to Latin America) but rather has chosen to buy assets that have value. As a city-state that understands its place in the world (perhaps the greatest transit point for goods and people since Hong Kong’s heyday), Dubai is focusing on transportation and related activities.

For that reason, it is completely believable that the bid was unsolicited. P&O Chairman Sir John Parker, who incidentally gets to keep his job, told the BBC, “We did not solicit the bid but we received an attractive proposition. It was followed by some very tough negotiations. Putting P&O and DP World together will create one of the top three leading ports groups in the world.” DP World became the sixth biggest port entity earlier this year when it bought CSX World Terminals, which used to be owned by CSX, the American railroad. With P&O, DP World may not be third, but it ranks among the four biggest along with Hong Kong’s Hutchison Ports, Singapore's PSA and APM, part of the Maersk Group.

Interestingly, there are to be no job cuts, according to DP World. Because there is very little overlap between the existing operations, there is not much room for cost savings by eliminating duplicate services and personnel. Indeed, DP World has announced it will make good on the £200 million pension shortfall at P&O over the next five years, starting with a £125 million cash injection.

The offer is a 46% premium on the share price seen on October 30, when initial reports of some kind of bid reached the press. It is strong enough that no rival bids are expected, although there was hope among shareholders (greedy fellows) that someone else would step in to run the price up. So why did DP World do it? The IMF says world trade will grow by 7.6 % next year, and that means shipping and terminal services will see increased demand. The only problem the Dubai company now has is what to do with the profits is it likely to make.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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