DP World: how US politicians got in the way of the lawyers

Gemma Westacott on Freshfields’ and Linklaters’ scramble to save DP World’s acquisition of P&O

DP World might have lost the battle to own and operate P&O’s US port operations, but it has won the war, so to speak, by finalising its takeover of the London-based company’s other international assets.

Last Wednesday (15 March), DP World succumbed to pressure from the US Congress and wider public, confirming that it would sell its US port operations within four to six months to an unrelated US buyer, without retaining any stake.

The announcement comes after weeks of emotionally charged debate about the supposed threat to US national security posed by placing P&O’s five US port operations in the hands of a United Arab Emirates (UAE)-owned company.

The debate escalated to such a level that it even threatened to become the downfall of the Bush administration after President Bush defended the deal, warning that the UAE was a valuable ally.

Despite DP World’s announcement last week defusing the heated situation, the question remains over whether DP World, P&O and its team of lawyers advising on the deal should have seen the writing on the wall.

One very well-connected New York lawyer questioned whether DP World and Linklaters should have seen the political storm brewing, especially given the fierce political opposition of Chinese oil and gas company CNOOC’s failed bid for Unocal Corp last year.

“It didn’t take rocket science to see this. To focus solely on the administration was ill-conceived,” he said.

His comments point the finger directly at Linklaters partner Jeremy Parr and head of corporate David Cheyne, who have advised DP World on the deal from the start, with the assistance of Washington DC-based law and lobbying firm Alston & Bird, led by partner Thomas Crocker.

Freshfields Bruckhaus Deringer partner Mark Rawlinson has also borne the brunt of the political wrangling, having been lead adviser to London-based P&O. Although he at least was granted a reprieve when the port operator’s sale for $6.8bn (£3.9bn) was completed and P&O’s shares delisted on 9 March. His last hurdle was the dispatch of the consideration to shareholders last Thursday (16 March).

But that has not stopped Rawlinson from condemning the New York lawyer’s comments as “ignorant”, stating that Linklaters and DP World did “all they should have done to gain clearance” for the takeover.

In fact, DP World and Linklaters first approached the Committee for Foreign Investment in the US (CFIUS), the US federal body that reviews the national security issues raised by such transactions, back in October, before the company had even begun formal, public discussions with P&O. The CFIUS then approved the takeover on 17 January, four weeks before US lawmakers and the public first began questioning the security of the deal.

“Because DP World had done everything properly, they probably thought they were safe,” Rawlinson said. “But from a PR standpoint, perhaps they didn’t see that it would gather steam that quickly.”

Linklaters’ Parr ponders this predicament. He claims that nothing could have been done earlier to gain the support of the US public. This is because, under the Exxon-Florio statute, the process to gain clearance from the CFIUS is confidential and, had the company spoken publicly about the process, it would have broken the law.

This placed DP World in a difficult position as the US Congress was quick to stir up trouble for the deal once it realised the level of public support for its opposition. Mid-term elections are looming on the political calendar in November, after all.

The first hint of trouble in the deal was, in fact, when one irate P&O shareholder piped up during a shareholder meeting on 13 February when the deal was approved, questioning whether, because DP World is based in Dubai, it has links to Al-Qaeda.

However, it was P&O’s own bed-partner, Miami-based container terminal operator Eller & Co, which really sparked the political debate by launching legal action in Florida and London in an attempt to block the deal and flagging up its ‘concerns’ with US Senator Charles Schumer.

Schumer became one of the most vocal opponents of the takeover, at one stage questioning whether the US should be “outsourcing our own security”. This is despite port security being managed by the US Coast Guard and US Customs, not the port operators.

Eller has a 50-50 joint venture agreement with P&O to operate the Miami Container Terminal, but has been in dispute with P&O over acquiring its shareholding in the joint venture.

As such, despite the UK Court of Appeal’s rejection of Eller’s petition to overturn the UK High Court’s decision to approve the takeover, it still potentially has a lot to gain from DP World being forced to sell its US operations, including those in Miami.

But despite the now rather obvious commercial or political reasons behind the very public opposition to DP World’s takeover of P&O, the outcome is still the same. DP World must sell its US operations, which are estimated to be worth $700m (£398.4m), and has called in the big guns for the sale, appointing New York heavyweight Sullivan & Cromwell as key adviser, assisted by Alston for US regulatory issues.

So it appears that the most crucial lesson to be learnt from the deal is that good PR might just be as invaluable as the right legal advice.