A Fiduciary Catch-22? Or, DP World Goes on a "Sheikh Down Cruise!"
Dubai Ports World’s purchase last year of U.S. marine terminal businesses created a huge controversy because of allegations that an Arab company’s operation of the terminals might make the nation more vulnerable to terrorism. Congress stepped in and forced DP World to divest the U.S. holdings acquired from British ports operator P&O.
Now Dubai Ports World’s plan to sell those same businesses to an arm of the U.S. insurance company AIG is creating another brouhaha.
This time the dispute seems to be more about money than security, as well as AIG’s lack of experience in the port business.
Thursday, DP World and AIG complained in a letter to the Port Authority of New York and New Jersey that the agency has not yet granted “consent” to the deal, which includes the right to operate the port authority’s Port Newark Container Terminal (PNCT) in New Jersey.
DP World and AIG also released copies of their letters to media outlets such as the Associated Press.
The letter from Mohammed Sharaf, chief executive officer of DP World, and Christopher Lee, managing director of AIG Global Investment Group, said: “the port authority has indicated that it will not give this consent unless the parties pay a fee of up to $84 million.
“The lease does not provide for any fee for this consent,” the letter continued. “Indeed, we are not aware of any such consent fee for ports anywhere else in the U.S. or globally. The fee being requested by the port authority is far in excess of any reasonable administrative fee.
“If the port authority continues with its unreasonable request, the sale will fail.”
In an interview with the Financial Times, Sharaf said, “On the one hand you’re telling us to sell. On the other you’re making it difficult to sell. It’s very disappointing.”
Richard M. Larrabee, director of the port authority’s Commerce Department, responded with a letter of his own Thursday afternoon. He said DP World and AIG abruptly walked away from negotiations and asked them “to return to the bargaining table, rather than extracting benefits through the press.”
The port authority sees the dispute as a landlord-tenant matter.
“Dubai Ports undertook to sell its PNCT interest with full knowledge that the PNCT lease expressly provides the PA (port authority) with an unconditional consent right in the event of a change of control,” Larrabee wrote. “Dubai Ports elected to proceed with the sales process without in any way discussing with the PA what requirements would need to be satisfied to obtain the PA’s consent.
“This consent right is intended to ensure both the suitability of any terminal operator, as well as to ensure that change of ownership does not occur continually to simply pull the value out of the public investments made without benefiting the long-term interests of the port,” he added.
Larrabee said the agency asked for due diligence information from DP World and AIG in December, and renewed those requests in January and this month.
Only in the last 48 hours at the port authority’s insistence, have DP World and AIG “begun to share any of the information that the PA requires in order to exercise its fiduciary responsibility,” Larrabee said.
Instead of satisfying “due diligence requests and continuing good faith discussions,” Larrabee said DP World and AIG have “chosen instead to voice their position in the public arena.
“The PA has a fiduciary responsibility to ensure that it receives all the information necessary to determine that this transfer does not cause any detriment to the security of this port or to the bi-state region. Among other things, the PA has a fiduciary responsibility to ensure that the proposed change in PNCT’s beneficial ownership, from a shipping operator to a financial investment company, has no adverse impact on future capital investments made in the terminal or on container throughput,” he said.
In addition, Larrabee said that based on public information “Dubai Ports will generate at least $450 million of proceeds on the sale of PNCT, based on a total investment of approximately $140 million. This represents an annualized rate of return of more than 40 percent.”
He noted, “this extraordinary windfall was greatly supported by capital expenditures by the PA into the terminal. The PA’s expenditures of public funds were made to increase capacity of the terminal and thereby directly enhanced the value that Dubai Ports will receive upon a sale of PNCT.
“The PA's request that its capital expenditures be recovered out of Dubai Ports' extraordinary gains is intended to ensure the continuing strength and viability of regional port facilities,” he added. “Recovery of expenditures would be reinvested in the port facilities to ensure the continued competitiveness of the New York and New Jersey port system.”
Meanwhile, the politicians at the center of the opposition to DP World’s takeover last year of P&O, quickly jumped into the fray, criticizing the port authority and asked it to abandon its request for $84 million as a condition for giving approval to the lease transfer.
“I wouldn't call it a shakedown in the traditional sense, but (they are acting) in an unseemly way,” Sen. Charles Schumer, D-N.Y., told the Financial Times.
Representatives from DP World and AIG have resumed negotiations this morning at the port authority's office, an agency spokesman said.
At a press conference Thursday, Sen. Robert Menendez, D-N.J., threatened political payback against the port authority.
“I've carried a lot of water for the port authority. I have no intention of carrying any water for the port authority if they cannot consummate this deal for the national security of the people of our region and our nation,” the AP quoted him as saying.
A formal statement issued by Menendez’s office late in the day seemed more moderate, however, saying simply that concerns about foreign ownership of port assets expressed a year ago are still valid today.
“All parties involved in these negotiations should remember that this is not just a business transaction and isn’t just about a quick payday. This is, most importantly, a matter of national security and about protecting the American people,” Menendez added.
Anybody think that this might be a leaked script from the last season of the Soprano's...think again! Just when you thought the DP World saga could not get any worse...