Virginia ends port bidding process

The Virginia Secretary of Transportation has terminated the evaluation of three bids Virginia received last year from Carlyle, Goldman Sachs and CenterPoint Properties for the operation of its state-owned port terminals. However, Virginia will still examine ‘the advantages of privatising all or part of their operations’ in the future.

The Commonwealth of Virginia has terminated its evaluation process of three unsolicited bids it received last year seeking long-term operating agreements for the state-owned Port of Virginia, the port said in a statement released Friday.

“The Commonwealth said 'thank you, but no, thank you – we appreciate your interest,'” said port spokesperson Joe Harris.

However, the prospect of leasing all or part of the port’s operations remains alive. Virginia will evaluate the Virginia Port Authority (VPA) and its operating company, Virginia International Terminals, “to determine the advantages of privatising all or part of their operations in the future”, the port said.

The evaluation will be conducted in the next year.

Port of Virginia: saying 'no' to
private bidders for now

Virginia Secretary of Transportation Sean Connaughton said in a letter to the three bidders he decided to terminate the process because the bids were received during a significant economic downturn that depressed the value of the port’s cargo terminals. Connaughton also said the port’s value had increased recently as a result of a recent deal it signed with port operator APM Terminals.

“The bids, therefore, are not considered reflective of the value of the terminals based on the past investment made by the Commonwealth and their anticipated value as the economy recovers,” Connaughton concluded.

For the three bidders – private equity firm The Carlyle Group, investment bank Goldman Sachs and industrial property developer CenterPoint Properties – Connaughton’s letter concludes about 18 months of waiting to find out whether the port would consider their proposals. But it likely won’t come as a surprise, as the port has indicated before that it was not impressed with the preliminary sums indicated in the firms’ bids.

In June, after the VPA agreed to lease a port terminal from APM Terminals in Portsmouth for 20 years, Harris told Infrastructure Investor the $865 million deal would render the three firms’ bids “not rich enough”.

“The bids, therefore, are not considered reflective of the value of the terminals based on past investment by the Commonwealth and their anticipated value as the economy recovers

Sean Connaughton

Connaughton confirmed this sentiment, saying “none of the bids could take into consideration this enhancement of the VPA portfolio of assets”.

Chicago-based CenterPoint sparked the bidding process in March 2009 when it unveiled an ambitious, first-of-its-kind proposal to lease the port’s entire terminal operations for 60 years in exchange for an upfront payment of $500 million and ongoing revenue sharing. CenterPoint placed the total economic value of the proposal at about $8.9 billion.

Under Virginia’s 1995 Public-Private Transportation Act, the law that governs the bidding process for private investments in public infrastructure assets, the proposal opened a 120-day period for other bidders to also express their interest in the transaction. Carlyle indicated an interest in a transaction with an upfront payment between $500 million and $700 million and Goldman indicated $250 million, in addition to various revenue sharing arrangements.

None of the proposals were best-and-final: all three bidders indicated they were submitting preliminary proposals and would look to firm up their offers as the bidding process continued.

“I always equate it to a home buying process – it's an initial offer,” said Harris.

By ending the process now, though, Virginia denies Carlyle, Goldman and CenterPoint the opportunity to adjust their bids to reflect the port’s current operating situation.

The port has seen its cargo volumes begin to rebound, the VPA said in a statement. In July, the VPA marked its seventh consecutive month of positive increases for its cargo container handling. The container volume was up about 8.3 percent versus July last year, according to data published on the port’s website.

By contrast, when CenterPoint, Carlyle and Goldman submitted their preliminary bids last year, the port’s volumes were plummeting precipitously. In August 2009, the port reported a 20 percent drop in its container trade for the first six months of the year.

Connaughton said the fall in cargo volume caused the bidders to underprice the value of the port’s assets.