AIG deal calms Dubai ports controversy

The private equity arm of AIG will buy the North American port assets from the UK’s P&O Holdings, which is selling ports to a Dubai firm. The initial deal caused a national-security row among US policymakers.

AIG Global Investment Group (AIGGIG) has agreed to purchase P&O Ports North America (POPNA) from P&O Holdings, a wholly-owned subsidiary of the Dubai-based global marine terminal operator, DP World.

The transaction ends the controversy that erupted in February over DP World’s purchase of the UK’s P&O Holdings, which would have placed the management of six major American ports into the hands of the Dubai company.

Security concerns over placing domestic ports in the hands of a UAE-based business sparked a fierce political debate, splitting Republicans in Congress over the issue. Democrats and some Republicans argued against approval of DP’s acquisition by the federal Committee on Foreign Investment, which reviews any foreign investments that could affect national security, citing the ease of terrorist infiltration into a Middle Eastern company.

Opponents to blocking the deal claimed doing so would chill America’s global trading relations. They stressed UAE’s role as an ally in the country’s efforts to combat terrorism, and suggested an anti-Arab sentiment was at the heart of the critiques.

President Bush entered the fray in support of the deal, threatening to veto any legislation that would block the deal, which would stand as the first time he exercised this privilege. The President felt that the collapse of the deal would “send the wrong message” to all of the country’s allies in the region.

DP World took a conciliatory approach to the controversy, delaying the deal to generate sufficient political support and calling for a full 45-day investigation under US law to address the security concerns. The company’s COO went so far as to provide detailed plans to segregate the US operations from the rest of the company. However, by March 9th, DP World agreed to transfer its operations of American ports to a “responsible US entity” in the face of withering support on Capitol Hill.

At the end of August, a proposed short list of buyers for these interests was announced, which included the infrastructure funds of Morgan Stanley and The Carlyle Group.

AIGGIG acquired POPNA for an undisclosed sum, though Sultan Ahmed Bin Sulayem, the chairman of DP World, said, “While we are disappointed to be exiting the US market, the price we received was fair.”

In a press release announcing the deal, Christopher Lee, a managing director at AIGGIG, affirmed the deal as part of the firm’s strategy of acquiring “strategic, regulated infrastructure businesses and assets.”