Marine Log

February 27, 2006

DP World seeks new security review

DP World has asked for its acquisition of control of operations at U.S. port terminals be the subject of a more extensive security review. The big question now is whether the move will be enough to calm congressional critics of the UAE-controlled company's takeover at the facilities.

DP World says it intends to complete the $6.85 billion global transaction that includes the U.S. acquisitions as scheduled, but "will voluntarily separate out the U.S. assets that would otherwise be part of the deal to permit the Bush Administration, Congressional leadership and relevant port authorities to seek additional information regarding the acquisition."

DP World says it will guarantee the independence of all terminal operations managed by P&O Ports North America by establishing the operations as a completely separate business unit.

DP World will not exercise control over or influence the management of the U.S. operations--either directly or via P&O headquarters in London.

Final authority over the management and operations of the U.S. terminals rests exclusively with the Chief Executive Officer of P&O in London who is a British citizen.

The Chief Security Officer for P&O Ports North America will remain a U.S. citizen, unless the U.S. Coast Guard agrees otherwise.

The current management of P&O Ports North America will be retained and DP World will not in any way influence or attempt to influence any operations, policies, procedures, or security in place in the U.S. operations.

DP World says this arrangement will remain in place until the earlier of May 1, 2006 or the completion of the additional CFIUS review it has requested.

Yesterday, the Committee on Foreign Investment in the United States (CFIUS) said it "welcomed" the move.

Specifically, DPW has asked for a CFIUS review, including the 45-day investigation under the Exon-Florio amendment, based on a restructured transaction that the company intends to file with the Committee. Upon receipt of the new notification, CFIUS will promptly initiate the review process and fulfill DPW's request for a full investigation.

Over a nearly three-month period starting in October 2005, representatives of the 12 departments and agencies that comprise CFIUS, with assistance from the Intelligence Community, thoroughly investigated the transaction for national security concerns. CFIUS brought the Departments of Transportation and Energy into the review process to widen the scope and expertise of the national security scrutiny. These agencies will again be invited to participate in this new review process.

Background on CFIUS

CFIUS operates under the authority granted by Congress in the Exon-Florio amendment (Section 721 of the Defense Production Act of 1950). CFIUS brings together 12 departments and agencies with diverse expertise to ensure that all national security issues are identified and considered in the review of a foreign acquisition.

CFIUS member agencies are: The Departments of Treasury (Chair), State, Defense, Justice, Commerce, and Homeland Security, as well as the National Security Council, National Economic Council, United States Trade Representative, Office of Management and Budget, Council of Economic Advisors, and the Office of Science and Technology Policy.

The Departments of Energy and Transportation and other U.S. agencies are invited to participate in the consideration of transactions that have an impact on the industries under their respective jurisdictions.

CFIUS has already cleared the deal under a somewhat less intensive process

On November 29 of last year, notes a fact sheet released by the U.S Treasury, Dubai Ports World (DPW), a state-owned company located in the United Arab Emirates, proposed to acquire The Peninsular and Oriental Steam Navigation Company (P&O), a British firm that operates in a number of U.S. ports and other ports around the world. The acquisition would include terminal port operations at a number of U.S. ports--not the ports themselves. The Department of Homeland Security (DHS), particularly the Coast Guard and U.S. Customs and Border Protection, is in charge of port security.

DPW and P&O believed that this proposed transaction could raise national security issues that should appropriately be reviewed by the U.S. Government. The companies contacted CFIUS on October 17 and voluntarily told the Committee of their intention to file a notification with CFIUS for a national security review. They also held a complete briefing for DHS and other CFIUS members with security, defense, or law enforcement responsibilities on October 31.

Each of the CFIUS 12 members (departments and agencies) conducts its own internal analysis. In this case, the Departments of Transportation and Energy were also brought in to the CFIUS review to widen the scope and to add the expertise of those agencies reviewing the transaction.

On November 2, well before DP World and P&O filed with Treasury, CFIUS requested an intelligence assessment of the foreign acquirer. A little more than 30 days later-- still well before the companies formally filed with CFIUS or the review began--the intelligence community provided CFIUS with a threat assessment regarding whether the foreign acquirer--DPW-has the intention or capability to threaten U.S. national security.

On December 6, the companies held another pre-filing briefing for all CFIUS agencies.

On December 16, the companies officially filed their formal notice with CFIUS, requesting a review. The 30-day formal review began on December 17. During that 30-day review period, DHS, which is the CFIUS agency with specific expertise on port security, negotiated an assurances letter with the companies. DHS also consulted with all other CFIUS members before the assurances letter was finalized on January 6.

On January 17, roughly 90 days after the parties to the transaction first approached CFIUS about the transaction and roughly 75 days after a thorough investigation of the transaction had begun, all CFIUS members agreed that this particular transaction should be allowed to proceed, pending any other regulatory hurdles before the companies.