Business Analysis: Goldman plans £2.3bn bid for UK port group

Associated British Ports becomes latest docks company to face takeover by foreign consortium
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The Independent Online

Goldman Sachs is in talks about a £2.3bn bid for Associated British Ports in partnership with a Canadian pension fund and a secretive Asian investor.

The Wall Street bank is linking up with Borealis, the investment vehicle of the Ontario pension fund OMERS, and GIC Special Investments, the private-equity arm of the Singapore government, in a bid of up to 740p a share. AB Ports is the biggest UK port operator, handling a quarter of the nation's seaborne trade from 21 locations.

The deal could raise concerns about a key UK asset being sold to foreign investors in an age of terrorism. The recent takeover of P&O by Dubai Ports World sparked a huge political row in the US, forcing Dubai to offload the US ports owned by the British company.

GIC was set up in 1981 to manage the foreign reserves of the Singapore government. Its assets exceed £60bn. Its chairman Lee Kuan Yew is the former prime minister of Singapore ­ a man with a zeal for law and order who remains highly influential in his home country. GIC is regarded as extremely secretive ­ at one point it even refused to name its own board.

News of the offer leaked yesterday, putting the consortium on the defensive and alerting potential counter bidders. Goldman said in a statement it was forced to make to the stock market that "the consortium's considerations are at a preliminary stage and there can be no assurance that any offer will be made".

But things moved quickly yesterday. Goldman approached Deutsche Bank, AB Ports' advisers, with a deal that management is considering whether to put to shareholders.

The bank will have to persuade the authorities that the offer is not a classic private equity deal. One source said: "It is not 'get in, spruce the company up, tweak the accounts and sell'. This is a long-term financial investment."

Goldman Sachs is launching an infrastructure fund that would target assets such as ports. This deal, if it gets the go-ahead, would be one of the fund's first big moves.

Although the structure of the deal is still being worked on, it is thought that Goldman and Borealis would take the majority of AB Ports, with Singapore taking a minority stake.

Both OMERS, which looks after about £25bn on behalf of 355,000 investors, and GIC have pension obligations to meet, hence the need for companies with steady income.

Buying AB Ports is seen as a hedge against inflation, as it gives the bidders assets that will increase in value in line with the general output in the economy. As the Chinese demand ever more imports, ports around the world are seen to have excellent growth prospects. AB Ports shareholders, which include the usual City players such as M&G, Threadneedle and Schroders, may want to retain their stakes for that very reason, of course.

Although no one was talking yesterday, it is thought that the Goldman consortium rates AB Ports management highly. They will be offered incentives to stay and grow the business.

In some ways, the deal is just a straight property take-over. Operating 21 ports across the UK, AB Ports is a landlord in all but name. It owns 120,000 acres, not all of which are fully exploited, analysts believe.

AB Ports shares soared last week as the market mumbled about a possible bid. Yesterday they gained another 21p to close at 717p, at which level the company is worth £2.17bn. The City is anticipating that rival offers will emerge.

A note from Panmure Gordon, the broker, said: "AB Ports is a highly attractive company due to its irreplaceable assets and unregulated and highly predictable income stream. We believe that if the bid materialises, it may not be long before it becomes contested."

Joel Copp-Barton, at Dresdner Kleinwort Wasserstein, values the business at 830p a share, noting its No 1 market position, strong cashflow and ability to expand. The decision in last week's Budget to introduce real estate investment trusts increases the attraction of AB Ports, owing to the company's strong property portfolio.

AB Ports is much more than just another business, however. It is a vital national asset and potentially a target for malcontents with violent intentions. Although the same people will run the ports once the deal goes ahead, a change in ownership could spark concern about security.

It was hard to tell yesterday which branch of government would be responsible for examining a take-over. The DTI nodded in the direction of the Ministry of Defence. The MoD passed to the Foreign Office. And the Foreign Office offered the phone number for the DTI. The Home Office suggested the Department of Transport. The Department of Transport? Forget the Department of Transport.

In any case, AB Ports seems to be in good shape. Bo Lerenius, the affable Swede who has run AB Ports since 1999, was probably relieved to discover that his company is admired enough to attract an offer.

AB Ports last received a takeover offer in May 2000 when Nomura made an "informal approach" at 235p a share. Lately it may have been feeling unloved. While port operators around the world came under takeover siege, Mr Lerenius was left telling the City and the media that he hadn't had any bid approaches. If he was feeling left out, he can now stop.

Meanwhile, the Goldman Sachs takeover juggernaut rolls on. At this stage, its ability to raise finance across the globe suggests that few assets are safe from its reach.

Yesterday, almost as an aside, it bought a batch of properties from the German retailer KarstadtQuelle for $4.5bn (£2.6bn). This month, it was part of consortium that paid $8.8bn for General Motor's finance arm. Bids loom for a range of other businesses, including ITV. It can afford to miss out on AB Ports. But it probably won't.

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