Despite the controversy surrounding the take-over of management of many US ports by a Dubai company earlier this year, the latest North American acquisition by the Emiratis has so far caused few ripples.
On May 7, Dubai International Capital (DIC), the investment arm of the government-owned Dubai Holding, completed a deal to take over the UK’s Doncasters Group Ltd. for $1.3bn.
“This acquisition allows Dubai International Capital to move forward with its investment strategy to build a diverse portfolio of direct investments across various industries around the world,” said Sameer al-Ansari, CEO of DIC, announcing the deal.
With the takeover, DIC successfully gains control of several international production centres, including nine US factories, which employ 1000 people between them. There are also security aspects – two plants in the states of Connecticut and Georgia produce parts for the F-35 Joint Strike Fighter and the M-1 Abrams tank.
“Security'” too was the alleged bugbear of the last run in between a Dubai company and the US. The Doncasters purchase comes only two months after US lawmakers blocked a deal that would have seen Dubai Ports World (DP World) take over six US ports as part of a $6.8bn takeover of the British port operator P&O.
Objections from US politicians and workers were raised over turning US ports over to an Arab, foreign, government-owned company, because of threats to US national security. The outcome was that in March 2006, DP World agreed to sell P&O’s US holdings to a future US buyer, despite support for the deal from the White House.
The scuttling of the DP World’s takeover attempt in the US raised fears that the Doncaster’s deal, which had been agreed upon by former owner, Royal Bank of Scotland, in December 2005, would also meet strong resistance from US legislators.
But those concerns, so far, have proven to be unfounded, as the deal was signed off by the Committee on Foreign Investments, which advises the US president in cases where foreign investment may affect national security, after several months of review.
DIC isn’t out of the woods yet, however, as the DP World deal was also approved by the Committee on Foreign Investments and had the strong backing of President Bush, who vocally threatened to veto any motion by legislators to block the DP World takeover, before eventually giving in to a growing national firestorm opposed to the deal.
For now, the indications are that US lawmakers are not gearing up for another battle, indicating that the manufacture of mechanical parts for defence equipment is not deemed a major security risk.
Baring any last-minute snags, DIC will add another big-name global company to its growing international portfolio.
Doncasters, which turned over $885m in 2005, brings engineering expertise for the manufacture of precision parts for the aerospace, energy and defence sectors. With 25 sites in the UK, Europe and US, the company employs 4500 staff.
In its short history, DIC has made international headlines, started by its $1bn investment to acquire nearly 2% of DaimlerChrysler, making it the third-largest shareholder of the automotive company. In March 2005, DIC acquired the UK’s Tussauds Group, which holds the Madame Tussaud’s Wax Museum franchise, for $1.48bn. The company has also invested $272m in Jordan’s JD Capital and $150m in Ishraq, a Middle Eastern hospitality company.
DIC is the investment authority for the rapidly growing Dubai Holding, owner of 19 companies across 11 industries in Dubai, and has been charged with finding strategic investments for “above average returns”, according to CEO al-Ansari.
The Doncasters deal will also be a good image buffer for Dubai, which insists that it was unfairly criticised in the P&O fiasco. The nod by the US to allow a UAE company to control defence production plants is also a good omen for the UAE-US Free Trade Agreement (FTA) talks, resumed this week after being stalled amid the ports controversy.
The FTA talks, began back in 2004, are now entering the fifth round, surrounded by much more rapid progress by other Gulf Cooperation Council (GCC) countries to complete similar arrangements with the US.
Bahrain was the first Gulf country to sign an FTA, back in 2004, completing the negotiations in record time, while Oman quickly became the second GCC country in 2006, despite starting the process around the same time as the UAE, back in 2004.
The UAE claims that it is taking its time because it wants to ensure that the FTA will be in its interests, pointing out that such deals with large economies can be unfavourable to smaller countries unless given careful consultation.
After the DP World controversy, the UAE has learned the hard lesson that on the international stage perception, even in the case of what should be purely a business deal, is a key component to negotiations. With the Doncasters deal on the verge of completion and the FTA slowly but steadily on course to be signed, the UAE might be due for a douse of positive image building.
