The Hindu Business Line : DP World triggers a trend

DP World being stymied by US Congress means that many deals involving American assets and bidders, say, from West Asia, South Asia and China may not go through.

Malcolm Gladwell, the author of The Tipping Point, presented a powerful hypothesis in March 2000. The possibility of powerful and sudden change is at the centre of his hypothesis. A `tipping point' is the moment of critical mass. It is a threshold. It is a boiling point. It is a turning point. It is a propelling kick.

Mr Gladwell did not invent `tipping point'. He modestly and honestly acknowledges it is an expression that has been in usage since the early 1970s in America's north-east. But he has assiduously presented facts and data to support the hypothesis that little things make a big difference. So forceful is his hypothesis that many now regard `tipping point' as a postulate. A postulate is merely a step behind theory.

Tipping points drill their way through natural barriers. They bore through national boundaries. Then they lead to more tipping points. All events around us are links in some chain of tipping points. Some are powerful tipping points that provide the impetus. They are the causes of change. The others are the results of tipping points. They are the changes that go on to produce more changes.

A tipping point alters status quo. It alters the state of matter. It alters the states of minds. It alters societies. Things do not remain the same after they go through a tipping point. Lech Walesa's fearless, selfless and responsible oratory at the gates of the Gdansk shipyard in Poland in 1980 changed the balance of power between citizens and the ruling elite.

Walesa's oratory is a tipping point that led to another tipping point. Ordinary people broke the Berlin Wall down in 1989. This too became another tipping point. The fall of the wall changed the military and political architecture of Europe. The fall of the wall broke social and economic barriers. Consider the consequences. The euro is now Europe's single currency. It is the result of a chain of tipping points. The euro has changed the course of politics, fiscal policy and governance, businesses, and livelihoods and income aspirations in Europe. Walesa may have propelled this sequence.

Running big bucks

Sports, societies, politics and businesses may all be viewed and analysed as chains of tipping points. Consider cricket. Kapil Dev tipped things forcefully in his team's favour twice in 1983. First, he scored 175 runs to push his team's chances of a place in the semi-final clash. Second, he ran to take a great catch off the bat of Vivian Richards at the magnificent Lord's cricket ground in London in 1983. India won the cricket world cup. It beat the formidable West Indies in the final clash.

This victory, in turn, was a tipping point. Cricket is now a very big sport in India. It has the backing of big business. It has millions of followers. It has spawned a global business that comprises sponsorships, celebrity endorsements, product placements and the media.

DP World buys P&O

DP World, parent of Dubai Ports, is one of the world's three largest port operators. Hutchison of Hong Kong and PSA of Singapore are the other two. All three peers are Asian. Hutchison is private while DP World and PSA are state-backed port authorities. DP World has been in the news since last year. It paid nearly $7 billion in October 2005 to buy London's Peninsular & Oriental Steam Navigation (P&O). The acquisition of P&O gave DP World control over six ports in the United States.

DP World paid 29 times earnings to acquire P&O. This multiple is astronomically high in this industry. Some may infer that DP World paid a big multiple to gain control over the six US ports. They would be wrong. DP World had its eyes set on P&O's ports in China and India.

China and India are the rising stars of the world. This does not mean the US is a fading star. Moreover, DP World's principal peers are Asian. From these two perspectives, the price paid by DP World is justifiable. It is a tipping point for other assets in these economies.

Pretentious preacher

The US has been steadfast in its claim that it is the world's most vigorous champion and practitioner of globalisation. But US Congress was peeved at the acquisition of control over six ports by DP World. When P&O was owned by Western capitalists and shareholders, US Congress saw no threat to the security of its ports. But DP World and Dubai do not belong to the Western world in the US Congress's reckoning. So, the House Appropriations Committee voted 62-2 in February 2006 to bar DP World from holding leases or contracts at US ports. The vote is the second tipping point. It reflects the importance that both Democrats and Republicans assign to national security in order to further their chances of re-election. Significant elections are held once in two years in the US. They are due this November.

What this means is that many deals involving US assets and bidders, say, from West Asia, South Asia and China may not get through US Congress. US assets may have become less attractive to foreign buyers.

Oozing sobriety

Dubai is a member of the United Arab Emirates. It is assumed to be rich because of its crude oil. But that is wrong. Dubai has propelled itself through many tipping points under the leadership of the ruling Al Maktoum family. Oil accounts for merely 7 per cent of its GDP.

The acquisition of global assets that are not dependent on oil is at the centre of Dubai's plan for its future. The acquisition of P&O is part of this plan. DP World is state-owned. Dubai did not want to be trapped in a fight with US Congress. It had to do something. It had to do something for its 'global' inhabitants. About 80 per cent of Dubai's 1.5 million inhabitants are expatriates. They include Bangladeshis and Indians working on building sites. They include Indian and American executives who run global businesses. The chief operating officer of DP World is Edward Bilkey. Mr Bilkey is an American.

So, Dubai did something very sober on March 10. It promised to transfer control over the US port terminals. It is very likely that DP World will find a Western buyer. Any loss from the deal will be made up over the long term by cash flows from port operations in China and India. This is the third tipping point.

(The author is a financial analyst. Feedback may be sent to indiagrow@yahoo.com and pari@thehindu.co.in)

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