British firm declines Dubai offer as PSA pays 6pc more and agrees to satisfy any regulatory demands Singapore's PSA International yesterday bid GBP3.54 billion ($49.07 billion) for Peninsular and Oriental Steam Navigation (P&O) in a move unanimously recommended by the venerable British firm's board. The bid, which would see PSA replace Hutchison Whampoa as the world's No1 container terminal operator by volume, trumped by 6 per cent an offer made late last year by Dubai Ports World (DP World) and set the stage for a bidding war between the state-owned firms. The P&O board withdrew its backing for the earlier DP World offer. The new offer is conditional and is pending shareholder and regulatory approvals. 'I strongly believe the combination of PSA and P&O will create the strongest business platform,' PSA chairman Fock Siew Wah said yesterday. 'We will have an enlarged port group that will have the financial resources, scale and global connectivity to compete more effectively in the marketplace.' DP World sources responded to the PSA bid yesterday by reaffirming their determination to buy P&O and are expected to make a counter-offer. The PSA offer, which equates to 470 pence per share against 443 pence from DP World, was widely expected after PSA on January 9 approached P&O with a potential offer that mirrored yesterday's bid. Nevertheless, each new round in the ensuing heavyweight battle between the well-funded firms is destined to hold industry watchers spellbound. The acquisition, which includes assets in 29 ports, is so strategically important for both players that historic valuations for port assets have been cast aside. The PSA offer represents a 2004 price-earnings multiple of 26 times. World No1 Hutchison Port Holdings is valued at 16 times this year's earnings, according to Morgan Stanley estimates. 'It doesn't make much sense economically. I didn't think you could justify 443 [pence per share] so 470 is impossible,' said one ports analyst for a major European bank. 'Dubai wants to buy a global industry for a country with little outside its borders, while PSA's motives are more defensive. They have one terminal that generates most of their revenues and they want to spread some of the risk away from that.' Analysts said PSA would have more regulatory and anti-competition hurdles to overcome than DP World. It has had informal talks with rival operators about selling some of P&O's assets, in part to address those issues if they prove insurmountable, according to executives they have approached. 'Clearly, they will have duplications in some regions which may see them sell some assets for anti-competitive and strategic reasons,' said Rob Hart, the head of the regional conglomerates team at Morgan Stanley. 'These are issues that DP World is unlikely to face.' The P&O board said it believed DP World's purchase had been approved by all regulatory authorities in the 19 countries governing the assets. PSA had yet to gain regulatory approvals but had promised to 'take all steps that any regulatory authority may require'. PSA would not comment yesterday on whether a sell-off is likely if its offer is accepted. But a Singapore-based corporate spokesman expressed confidence. 'We expect our transaction to be cleared by all the antitrust authorities,' he said. P&O shares hit 515.75 pence in London yesterday afternoon, up 70 per cent on the 303.5 pence they fetched on October 27 last year, before the first offer for the 168-year-old firm.