 Move to End Three-Week Dispute Comes After GOP Lawmakers, Defying Bush, Vowed to Kill Deal By Jonathan Weisman and Bradley Graham
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." Staff writers Peter Baker, Terence O'Hara, Paul Blustein and Brooke Masters contributed to this report. © 2006 The
Washington Post Company
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