PSA quits pursuit of P&O over steep price

PUBLISHED : Saturday, 11 February, 2006, 12:00am
UPDATED : Saturday, 11 February, 2006, 12:00am

Pullout will allow DP World to seal deal and become No3 terminal operator

PSA International, Singapore's international port investment arm, yesterday bowed out of the billion-dollar bidding war for Peninsular & Oriental Navigation (P&O) leaving Dubai's DP World to complete the deal and create the world's third-biggest terminal operator.

PSA, which had until Monday to counter Dubai's GBP3.88 billion ($52.53 billion) bid - or 520 pence per share - for the venerable British maritime firm, said it could not justify raising its previous offer of 470 pence and that it would 'no longer pursue the purchase of P&O'.

'PSA believes the businesses of P&O offered an attractive opportunity to add to our global portfolio,' the state-owned firm said in a statement yesterday. 'We also 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.'

The withdrawal ends a four-month run that had driven P&O valuations through the roof since late October, when rumours of Dubai's intentions started a steep ascent in the 168-year-old company's London share price.

DP World management, who took just 12 hours to counter PSA's last bid on January 27, were predictably optimistic yesterday and looking forward to folding P&O's operations at 29 ports and its ferries asset into an enlarged group.

'We are very excited and look forward to working with our P&O colleagues in a world-class organisation where our customers will get the best the industry can offer,' chief executive Mohammad Sharaf told the South China Morning Post.

DP World's 520 pence per share offer was unanimously recommended by the board and will be taken to shareholders on Monday.

If approved, it would value the P&O portfolio at more than 30 times 2004 earnings.

The global port assets of Hutchison Whampoa, the world's No1 terminal operator by volume, are valued at 16 times this year's earnings, according to Morgan Stanley estimates.

'The price was extremely aggressive so it's probably a good move on the PSA's part to pull out of the running,' an analyst for a leading US investment bank said yesterday.

Industry watchers always saw PSA as behind the eight-ball in the battle for P&O.

Dubai management had shown on several occasions that it valued P&O far beyond historic valuations for the ports sector.

Temasek Holdings, PSA's controlling shareholder, was thought unlikely to sanction an all-out bidding war despite P&O being probably the last global ports portfolio to go on the block.

DP World's predecessor, Dubai Ports International, in January last year agreed to pay US$1.15 billion for the global port assets of United States rail giant CSX Corp in a deal that included shares in three terminals in Hong Kong.

Pending shareholder approval of the P&O deal on Monday, the state-owned firm will have Dubai's diminishing oil resources to leverage its transition from a niche Middle Eastern ports player to a global terminal power-broker in 12 short months.

The value of shares in P&O fell 4.7 per cent in 30 minutes after PSA announced it would pull out of the bidding yesterday, reaching 517 pence at 1pm London time, but still up 70.3 per cent on the 303.5 pence they fetched on October 27 before rumours of the first offer circulated.