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AIG to buy port operation

Dubai firm stymied by security flap calls insurer winning bidder

By Meredith Cohn
sun reporter

December 12, 2006

The Middle Eastern company forced to sell its operations in Baltimore and five other U.S. ports in a pre-election fracas over maritime security said yesterday that it has picked a buyer.

DP World said AIG Global Investment Group, the giant U.S. insurer's asset manager, was the highest bidder. AIG will be entering the port business for the first time.

The sale is not expected to have much impact on the operations at the ports because AIG has said it plans to retain the current port management and may even keep the name of the former port operator. But it will bring an end to an intense political flap that drew attention to both port vulnerabilities and foreign policy in a post-Sept. 11, 2001, environment.

"We said we would sell the assets, and we've done that in a timely manner," DP World chief executive Mohammed Sharaf said in a telephone call from Dubai. "We're happy to put this behind us. We're sad that we are out of the United States. But we look forward to the day when we can come back."

Some in the industry suspect the price exceeded the $700 million the company indicated it expected.

DP World bought the U.S. port assets as part of the global portfolio of London-based Peninsular & Oriental Steam Navigation Co., or P&O Ports, for $6.8 billion in March. Some lawmakers of both parties on Capitol Hill thought the company, owned by the government of Dubai, posed a security threat. They noted that Dubai is a member of the United Arab Emirates, where federal officials said one of the Sept. 11 terrorists may have lived.

Dubai is a U.S. ally and has had a long relationship with the U.S. Navy, but after a brief public relations effort, DP World agreed to a resale. It never took active control of port operations, allowing the U.S. contracts to be run by P&O managers while the sale proceeded.

Terminal managers hire and oversee the work force that handles million of tons of cargo coming into the country by sea.

In Baltimore, P&O operates Seagirt Marine Terminal and does some work at Dundalk Marine Terminal. It employs about 65. At the time the sale was announced, all but one of the employees were American citizens.

The major contract for Seagirt is up for renewal in November 2007, and port officials in Baltimore said they have not decided whether they will renew it or seek a new manager. After waves of consolidation in the industry, most of the world's largest terminal operating companies are now foreign-owned.

"This has been a long process, and it is good for all parties that it is finally moving forward," said F. Brooks Royster III, the Maryland Port Administration's executive director. "Throughout the duration of this process, it has been business as usual at the Helen Delich Bentley Port of Baltimore. We do not foresee any significant changes in operations in the short-term. We look forward to reviewing long-term investments in infrastructure with AIG."

Like Royster, most analysts do not expect much to change at any port after the sale closes in early 2007.

Neil Davidson, research director for Drewry Shipping Consultants Ltd., said, "I think that AIG will obviously be looking for the existing management of [P&O] continue their good work. Given that AIG isn't an operator, then it is natural for them to place particular value on the incumbent management team," he said. "As an owner, I think that AIG will be very positive as they have wide experience of infrastructure ownership and won't be afraid to invest."

AIG does not own other port assets, according to a spokesman.

But it does own pipelines, power plants, water utilities and other infrastructure, and makes other investments with cash generated largely from the insurance business. In each case, it oversees its investments passively and does not step in to reorganize or manage them directly.

Insurers of all types collect premiums and invest the money so they'll be able to pay claims. AIG, one of the world's largest insurers, manages more than $635 billion in assets.

The United States is the world's largest importer, and the port management business is viewed by analysts, and AIG, as a way to generate solid and steady returns.

"We have identified the marine terminals sector as a key element in our infrastructure investment strategy, and we believe that [P&O] is one of the leading operators in this sector in the United States," said Christopher Lee, AIG's managing director. "We are very pleased to partner with the company's management team to continue delivering the highest standards of security, safety, integrity and operational reliability."

DP World is one of the world's largest terminal operators, managing 45 non-U.S. port terminals worldwide. Last week, the U.S. Homeland Security Department named the company a partner in a new U.S. effort to scan cargo containers for nuclear and radiological material at overseas terminals before they are shipped to the United States.

Davidson, the analyst, said the change in ownership wouldn't make a difference in security.

"The terminals will be as safe under AIG's ownership as they were under DP World's ownership -- and before that as safe as they were under P&O's ownership," he said.

Agreeing was Donald F. Kettl, director of the Fels Institute of Government at the University of Pennsylvania and author of books including System Under Stress: Homeland Security and American Politics.

"It's a very interesting question about whether having the ports owned by a group headquartered in New York City, but which is just as internationally diverse, really changes anything. Except the politics," Kettl said.

The deal is still subject to regulatory approvals, but it already appears to have backing. Sen. Charles E. Schumer, a New York Democrat who was leading the call for a sale, said he expects the deal to be approved. The port of New York-New Jersey is one of the ports involved in the deal. The others are in Miami, New Orleans, Philadelphia and Tampa, Fla. There also are several contracts to handle cargo at other U.S. ports.

"This is an appropriate final chapter to the book on the Dubai Ports World deal," Schumer said. "This is very likely to receive broad support in Washington and throughout America. The winning bidder should be a good partner for America's commerce and security, and I expect it will go through the regulatory process smoothly, easily and successfully. This transaction is happening in the broad light of day, where it should have been all along."

Rep. C.A. Dutch Ruppersberger, a Baltimore County Democrat whose 2nd District includes the port of Baltimore, said DP World is a leader in port security and U.S. ports should learn from them.

He said he still believes, however, that foreign companies should not be running operations at U.S. ports. That and other possible port security lapses, he said, will be continuing issues for the nation's security agencies and the Congressional Port Security Caucus, for which he is a co-chair.

"Dubai is an ally, and I don't think DP World was a threat," Ruppersberger said. "This was not a Dubai issue. It could have been any country. It's about the fact that we need to control our ports and limit our exposure to terrorism."