AB Ports Sinks $4B Buyout Bid

Target: AB Ports

Buyer: Goldman Sachs, OMERS, GIC Special Investments

Reported bid: $4 billion (£2.3 billion)

Target’s Financial Advisor: Deutsche Bank

Products ranging from spinach to olive oil are shipped to America through sea ports. The recent controversy in the United States over the potential partial control of six U.S. ports by a Dubai-based company showed not only the politically poisonous atmosphere surrounding foreign ownership of major transportation assets, it proved also that private equity groups are not afraid to step into the mix. But it will apparently take more than Popeye-sized strength to woo foreign ports. Goldman Sachs and an international consortium was handed defeat in an ambitious bid for a U.K. port company.

Goldman Sachs was joined by the Ontario Municipal Employees’ Retirement System (OMERS), and Singapore government private equity group GIC Special Investments in a $4 billion (£2.3 billion) bid for Associated British Ports (AB Ports). The AB Ports board of directors released a statement last week saying that the offer was “wholly inadequate.”

AB Ports is a London-based publicly-traded company that operates 23 ports in the U.K. It is the U.K.’s largest ports group and handles approximately 25% of that country’s merchant sea business. It also has ancillary real estate businesses as well as a U.S.-based component. The company forecast in February that its business in the U.K. would expand with the opening of two new ports in the latter half of the year.

Goldman Sachs announced through its London office that it had participated in the bid and did not return further calls for comment. OMERS declined to comment on the potential transaction, but confirmed it knew of the Goldman Sachs statement. Goldman Sachs approached AB Ports advisor Deutsche Bank with the bid.

AB Ports’s stock price rose the week before on the news that the company may be entertaining a buyout bid. JP Morgan analyst Damien Brewer says that the company is in a “fairly predictable, but low growth market” and that the company “could find it tougher to grow its way out of a high leverage as its EBITDA has struggled to grow.”

OMERS participated in the consortium through Borealis Infrastructure Management. OMERS, which has about $43 billion in assets, plans to increase its infrastructure investments to about 15% of its total assets over the next five years. GIC was founded 25 years ago by the government of Singapore and manages approximately $104 billion. Goldman Sachs is raising a $3 billion fund for global infrastructure investment. The AB Ports deal was expected to have been the first investment for the fund.

The deal would have taken on extra significance in light of the recent political firestorm that erupted in the U.S. over Dubai Ports World’s $6.8 billion acquisition of the U.K.’s Peninsular & Oriental Steam Navigation Co. (P&O). The deal included several U.S. ports that Dubai Ports World agreed to sell off. The AB Ports deal would have a positive impact on industry left recently smarting over the issue of foreign port ownership. It would also build on a past defeat for private equity’s attempt to stake a claim in the port business. Last year, Cinven and CVC Capital Partners were outbid by Peel Ports in a $1.3 billion (£771 million) deal for UK-based port operator Mersey Docks & Harbour.

Buyout insiders had considered the AB Ports deal a potential bellwether that could have had the effect of sending more buyout firms on the hunt for port deals. One potential port business investor told Buyouts:

“Ports are like toll roads or other transportation facilities in that historically there had been relatively few that became available for private equity investment… thus precedent transactions for these purposes had not been there. We are now starting to see ports as more of a mainstream type of investment, but it is still unproven whether they will be ‘home runs’ in terms of private equity returns, or stable, predictable and diversifying.” — M.S./D.P.