When the initial takeover approach by Dubai’s DP World for P&O, the UK ports and ferries operator, became public at the end of October last year, it would have taken a bold person to predict that the deal would transform the US ports sector.
The US, after all, accounted for less than one 10th of P&O’s business. The US assets were a mixed bag, with excellent container terminals in New Jersey and Miami but also less desirable assets, such as New Orleans.
After DP World was forced by political pressure in March this year to agree to sell off its US assets, there was scepticism in the ports industry that the company would achieve the $700m price it was targeting – the price represented about 10 per cent of the £3.92bn (then $6.8bn) DP World had paid for all of P&O, but the assets were some of the least profitable container ports.
However, DP World’s announcement on Monday that it had completed the sale to AIG, the US insurer, for what it called a “fair price” – thought to be well above $1bn – was the latest sign that both the ownership structure of the US ports industry and asset valuations were changing out of all recognition.
Neil Davidson, ports analyst at London-based Drewry Shipping Consultants, says DP World’s bid for P&O changed the market because it underscored the high
valuations some buyers were prepared to put on container port assets in an era
when new ports are hard to build and trade is growing fast.
After a bidding war with Singapore’s PSA, DP World eventually paid about 18 times P&O’s earnings before interest, tax, depreciation and amortisation for the company.
“It triggered other owners of terminals – like Orient Overseas International, SSA Marine and Marine Terminals Corporation – to consider their positions,” Mr Davidson says.
In the past year, one terminal operator – Orient Overseas International, the Hong Kong-based owner of OOCL, a container shipping line – has sold its North American Terminals for well over 20 times ebitda, an industry record, to a Canadian pension fund.
Another, Korea’s Hanjin Shipping, has sold 40 per cent of its terminals operation, including three terminals in the US, to Australia’s Macquarie Bank.
Other owners, including Seattle-based SSA Marine and Oakland-based Marine Terminals Corporation, are thought at least to have considered selling themselves, although neither has current plans for a sale.
Yet the outcry over DP World’s entry into the US market – led by senators such as Chuck Schumer, who claimed to be concerned about the security impact of having an Arab company running US container terminals – also narrowed the scope of potential buyers.
Both Hong Kong’s Hutchison Port Holdings, the world’s number one container terminal operator by throughput, and Singapore’s PSA, the world’s number two, were in effect barred from bidding.
The US political right has long distrusted Hutchison because of its alleged closeness to the Chinese government, while PSA risked criticism because it is owned, like DP World, by a government entity – in its case, Temasek Holdings, the Singaporean state investment company.
Prices have been maintained by the rising interest of financial institutions
in infrastructure assets offering a steady, predictable return.
“Despite the reduced range of potential buyers for the terminals in North America, there’s still quite a lot of competition for terminals when they do come up,” says Mr Davidson.
While Monday’s sale announcement appears finally to bring to an end the long-running saga of the P&O sale, it seems unlikely to mark the end of the transfer of US port assets from ports and shipping specialists to financial institutions.
Some analysts now predict SSA Marine – the world’s largest privately held container terminal operator – might still sell itself and many shipping lines might sell their terminal operations.