[Mb-civic] Dubai Firm to Sell U.S. Port Operations - Washington Post

[William Swiggard]

Dubai Firm to Sell U.S. Port Operations
Move to End Three-Week Dispute Comes After GOP Lawmakers, Defying Bush, 
Vowed to Kill Deal

By Jonathan Weisman and Bradley Graham
Washington Post Staff Writers
Friday, March 10, 2006; A01

A United Arab Emirates-based maritime company at the center of a furious 
controversy over port security bowed to pressure from Congress yesterday 
and announced that it will sell off its U.S. operations to an American 
owner.

The announcement, issued by Dubai Ports World Chief Operating Officer 
Edward H. Bilkey, came hours after House and Senate GOP leaders bluntly 
told President Bush that Congress would kill the U.S. portions of the 
company's $6.8 billion acquisition of London-based Peninsular and 
Oriental Steam Navigation Co. (P&O), which has operations at six major 
U.S. ports, including New York and Baltimore.

The company's decision climaxed a three-week furor that pitted both 
Republicans and Democrats in Congress against Bush on a volatile 
national security issue in a midterm-election year. Fueled by fear of 
terrorism in a post-Sept. 11 world, opposition to the port deal 
mushroomed to the point at which even Bush's veto threat proved 
ineffective and, if anything, further aggravated even GOP allies.

The White House praised the UAE-based company for its decision and 
reaffirmed the "strong relationship" between the two nations. "This 
decision provides a way forward and will allow us to continue working on 
other issues," White House press secretary Scott McClellan said in an 
interview.

Although the demise of the U.S. port deal is sure to leave badly bruised 
feelings in the UAE, of which Dubai is a part, analysts predicted that 
the United States will be able to preserve its extensive security and 
economic ties with the tiny country, given the strong mutual interests 
at stake. The bigger problem, they said, will be the new damage done to 
the U.S. image in the Muslim world.

Even before the deal fell through, Arab media had been portraying U.S. 
opposition as an anti-Arab slur, contrasting that resistance to the 
acceptance generally accorded in the United States to investments from 
Asian and European entities.

"This can only make the already-damaged image worse," said Youssef M. 
Ibrahim, managing director of Dubai-based Strategic Energy Investment 
Group. "The problem is, for four or five years, we haven't found a way 
to repair that damaged image."

It is not clear which American company is willing to buy DP World's U.S. 
operations. About 75 percent of containers that enter U.S. ports go 
through terminals that are operated by foreign-owned firms.

Officials at Seattle-based SSA Marine, the largest U.S.-owned terminal 
operator, said they have not been contacted. Some potential bidders may 
seek to join forces with firms that already have operations at U.S. 
ports. But the process is in the early stages, and DP World appears to 
be determined to avoid a fire sale.

One potential private-equity buyer is Washington's Carlyle Group, which 
bought the U.S. container-shipping business of CSX Corp. in 2002 for 
$300 million, selling it two years later for $650 million. Also, the 
Dubai government has been an investor in Carlyle's investment funds and 
put $100 million into its latest, $7.85 billion buyout fund.

A source at Carlyle, however, said the firm will probably not be 
interested in P&O's port operations, given the political scrutiny such a 
deal would invite.

Another potential private-equity buyer is the Blackstone Group of New 
York. Though not ruling out an offer for the business, a source at the 
firm said it is too early to tell whether P&O's U.S. operations are even 
worth seeking.

The administration quietly approved the sale of British-owned P&O to DP 
World on Jan. 17 after a review by its secretive Committee on Foreign 
Investments in the United States. But stung by the public and political 
outcry once the decision became widely known last month, the White House 
and the company owned by the Dubai government tried to placate critics 
by agreeing to a 45-day review of the deal's national security implications.

Congress began acting this week to revoke the sale, driven by 
constituent fears that Arab state ownership of U.S. port operations 
would compromise security. Senate Majority Leader Bill Frist (R-Tenn.) 
and Senate Armed Services Committee Chairman John W. Warner (R-Va.) 
warned company officials Wednesday that they would be prudent to cut a 
deal allowing them to sell off their newly acquired U.S. operations 
through normal business channels.

"Because of the strong relationship between the United Arab Emirates and 
the United States and to preserve this relationship, DP World has 
decided to transfer fully the U.S. operations of P&O Ports North 
America, Inc. to a United States entity," Bilkey announced in a 
statement. "This decision is based on an understanding that DP World 
will have time to effect the transfer in an orderly fashion and that DP 
World will not suffer economic loss."

DP World acquired management control of 24 of 829 container terminals at 
the ports of Baltimore, New York, New Jersey, Philadelphia, Miami and 
New Orleans. Terminal operators are primarily responsible for 
transferring containers from ships to railroad cars and trucks, 
administration officials have noted, while port security is the 
responsibility of the U.S. Coast Guard and U.S. Customs and Border 
Protection.

Company officials and Republican congressional aides said DP World 
intends to cut all ties to U.S. ports. "To me, there's nothing more to 
be done," said House Homeland Security Committee Chairman Peter T. King 
(R-N.Y.), a fierce opponent of the acquisition. "This deal is over."

Opposition to the deal has dogged Bush for weeks. Republican 
congressional leaders who gathered at the White House for a regularly 
scheduled meeting yesterday morning used the opportunity to warn him 
that he faced a defeat. Bush tried to smooth over the dispute, aides 
said, declining to repeat his veto threat during the meeting and 
dispatching spokesmen with talking points assuring that the "lines of 
communication remain open."

At his daily briefing after the meeting, McClellan abandoned tough talk 
in favor of conciliation.

By that point, rumors were floating that the company might withdraw, but 
White House aides said neither they nor Bush knew about the decision 
until Warner emerged on the Senate floor to announce it.

"Most people learned about it on CNN," said one senior official. 
Privately, Bush advisers sounded relieved. "This closes a chapter," said 
another top aide.

Frist was trying to hold back a vote yesterday on a motion by Sen. 
Charles E. Schumer (D-N.Y.) to block the deal, but even after the firm's 
announcement, Democrats -- and some Republicans -- pushed to put their 
opposition on the record.

In practical terms, several specialists on the region said the end of 
the Dubai deal will likely have little impact on UAE's willingness to 
continue serving as a major Middle East outpost for U.S. warships, spy 
planes and combat aircraft. That is because the extensive U.S. military 
presence is seen by UAE's leaders as serving their own security interests.

But the UAE may now be less inclined to respond as favorably as it has 
to U.S. appeals for military assistance outside the country's borders, 
analysts said. "They've been doing such things because they've felt they 
had a special relationship with us," said David L. Mack, vice president 
of the Washington-based Middle East Institute and a former U.S. 
ambassador to the UAE. "Now, I would expect less eagerness on their part 
to be as accommodating."

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/09/AR2006030901124.html
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