Battle of the Titans

Economic News

22 Jul 2010
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A wrinkle was put in the plans of Dubai-based shipping operator DP World this week in its efforts to takeover the UK port company P&O. Singapore's PSA International submitted a counter bid for the British outfit.

On January 10, PSA International Ltd, Singapore's state-owned port operator, made an approach worth reportedly £3.5bn ($6.19bn), trumping DP World's bid of £3.3bn ($5.83bn) made public in November.

"The board of P&O has received an approach from PSA International... which may lead to an offer to acquire that whole of P&O," said a statement posted on P&O's web site on January 10. PSA has requested a delay in any final decision on DP World's offer until January 20 to give it time to carry out due diligence on the company before making a formal offer.

The move by PSA was not particularly unexpected, as after DP World's interest in P&O became public, it had been rumoured for months that several large port operators might enter into the bidding. When PSA started to buy up minority shares in P&O after DP World's offer went public, analysts speculated that it was only a matter of time before the Singaporean port operator made a bid for what many consider a jewel of the maritime industry.

P&O currently manages 27 terminals in 18 countries with a total throughput of 21.9m 20-foot equivalent units (TEUs). The 169-year-old ferry and port operator is one of Britain's most venerated maritime institutions, and has grown to be the world's fourth-largest operator, possessing several strategic holdings in India and China.

P&O's stock, however, had started to slide in recent years, and since it is the only major publicly listed port operator, the company has long been fingered as ripe for takeover.

Despite the higher bid by PSA, all indications are that DP World will make another offer. "We are 100% committed to this transaction. Ours is the only serious offer on the table," DP World Chairman Sultan Ahmed bin Sulayem told reporters after hearing of the Singapore bid.

DP World is already the sixth-largest port operator in the world, and is expected to handle 12m TEUs in 2005. It has been on a mission in 2005. Acquiring a number of international terminals In January, its international portfolio was bolstered considerably after it acquired CSX World Terminals for $1.1bn, gaining ports in China, Korea, Australia, Germany and Venezuela.

Both companies are owned by the governments of dynamic city states, meaning they have the ambition - and more importantly, the money - to go head-to-head with each other. Dubai bankrolls its government-owned companies by making strategic investments, bolstered by being the one of the premiere investment destinations in an oil-rich region.

Meanwhile, Singapore has followed an aggressive diversification programme in the 1970s to become one of the wealthiest small economies in the world. Both cities owe much of their success to the development of their ports, and each see international expansion of maritime holdings as a key to their future development.

Consequently, there is a lot on the line for whoever prevails in this battle of heavyweights. A successful bid will make PSA, currently the number two operator, the largest port operator in the world - overtaking Hong Kong-based Hutchison Whampoa. If DP World wins, it would take over as the world's second-largest operator, displacing PSA.

While the current situation has publicly pitted the two port operators against each other, their rivalry has been coming to a boil in the past year.

In January 2005, DP World outbid PSA for a takeover of CSX World Terminals, which boasted ports in China, Korea, Australia, Germany and Venezuela. Since then, PSA has bought up a number of minority shares in CSX's former holdings.

While not losing ground to DP World is significant motivation, PSA, owned by the government's ambitious investment arm Temasek, also wants to expand overseas to diversify its current holdings. These depend heavily on volumes from Singapore, which in 2004 handled 20m TEUs out of the company's total of 33.11m.

PSA has significant interest in getting a better foothold in Asia as rival ports are expanding around the region which, analysts say, will hinder the port of Singapore from developing any further. DP World also has the motivation to expand its portfolio, as it depends heavily on the success of its home port of Jebel Ali.

In the meantime, with a bidding war looming, the immediate winners are the shareholders of P&O, who have seen their stocks rise 51% since October 28, when the news broke of DP World's interest in P&O, Bloomberg reported.

On January 12, in the days after PSA's approach, P&O stocks jumped 6%, touching £4.98 per share. With all indications that the PSA bid will not be the last blow in this battle, shareholders should continue to be happy in the coming months, as analysts predict that the winning bid might have to crack £4bn ($7.07bn).

Less certain, however, is who will finally be holding P&O's portfolio when the dust clears. Dubai, in the past, has relied on far outbidding its opponents to secure international deals, but with PSA seemingly ready to put up significant cash and not interested in losing another large deal to upstart DP World, this tactic may not be good enough to deal the decisive blow.

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