UK port deal has US security overtones

UK port deal has US security overtones The US$6.8 billion sale of the UK's Peninsular and Oriental Steam Navigation Co (P&O) to Dubai-based sovereign-backed DP World has created some tension on Capitol Hill over US national security issues. The company's main business is a portfolio of 29 container terminals within its 51 shipping terminals, and logistics operations in about 20 countries. The P&O portfolio includes operations at six US seaports. The US has made no secret over its concern that terrorist activities could be launched against the US through US seaports. DP World will now have operations in the US ports of New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia. The Bush administration has not raised objections to the deal as it considers the United Arab Emirates (UAE) to be an ally in the fight against terrorism. Leading the charge against the deal is New York's Senator Charles Schumer, a Democrat, who has questioned the prudence of giving a UAE company access to US ports. Schumber notes that some of the 11 September 2001 terrorists had connections to the UAE although most of those involved came from Saudi Arabia. That country is also considered to be an ally by the Bush administration. However, some of the money used to finance the 11 September activities was wired through the UAE banking system and two of the terrorists were UAE citizens. Schumer has called for a public review of the deal before DP World is permitted to operate in the US. The Port Authority of New York and New Jersey, which operates seaports in those two states, also noted that the deal raises some concern and plans to review the transaction. DP World will hold the balance of a 30-year lease on a container terminal at Port Newark that was signed in 2000. The Senate Banking Committee will also hold a hearing next week on the sale. The deal has also drawn the ire of two influential senators, both Democrats. Senator Hillary Clinton of New York and Senator Senator Robert Menendez of New Jersey plan to introduce legislation aimed at blocking DP World from buying P&O Ports and the terminals it operates at US ports because of security concerns. The measure to be proposed by the two senators is expected to contain language that would bar companies owned or controlled by foreign governments from acquiring US port operations. The charge has also been taken up by Republican Senator Lindsey Graham of South Carolin and Democratic Senator Barbara Boxer of California. Aside from the political fallout, the deal was an excellent coup for P&O shareholders. In the face of a late challenge from the Port of Singapore Authority (PSA), DP World raised its bid from 443 pence to 520 pence per share, a figure that represents a premium of 71.3 per cent over where P&O's shares traded prior to market speculation of a takeover. This bid was intended to be, and proved to be, a killer blow for PSA which in early January made a bid of 470 pence per share trumping DP World's original offer of 443 pence per share. PSA retired from the fray issuing a statement on the 10 February that tellingly said: "We believe the price we have offered at 470 pence per unit of deferred stock represented a full and fair value. For PSA to pay more than this price would not be compatible with commercial business sense and PSA's future success." Outside the US, much of the criticism is seen as political posturing. P&O has already received preliminary approval -- and expects to see final approval this year -- for the proposed mega-development on the River Thames in the UK, the so-called London Gateway project, which includes both a container port and a business park. While pundits may not be fully convinced that the UAE is a US ally, the UK government has proven itself to be a friend of the US. It is unlikely that the UK would turn a deaf ear to security concerns related to the P&O sale -- if there are any tangible security concerns. Disclaimer James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.