Dover, the U.K.’s biggest gateway for cars and trucks, is seeking state backing for a takeover or share sale that would permit it to raise cash and reverse a loss of freight traffic to the Channel Tunnel undersea rail route.
The Port of Dover needs 400 million pounds ($644 million) to fund a capacity “step change” that would add four ferry berths on top of the current nine to tap a projected jump in demand and fend off “fierce” competition from Groupe Eurotunnel SA (GET), Chief Executive Officer Bob Goldfield said in an interview.
Dover ranks as the world’s busiest vehicle port, handling 5 million last year, including 2.1 million trucks that make up 60 percent of Britain’s roll-on, roll-off freight traffic. Located on England’s south coast 67 miles (108 kilometers) from London and 26 miles from France, the harbor is currently a “trust port,” a status that stops it raising debt and has excluded it from a decade-long merger spree that featured the takeover of dozens of U.K. ports including London, Liverpool and Edinburgh.
“We need access to capital markets and we can only do that if we privatize,” Goldfield said by telephone on July 11. “When you deliver infrastructure the way we do, the most efficient way to do that is with debt. You can’t do it in any other way.”
Dover is awaiting a Department for Transport ruling on a sale it first sought 18 month ago, Goldfield said. The latest consultation ended June 27 and the government will probably respond when parliament returns from summer recess on Sept. 6, a DfT spokesman said yesterday.
“It’s disappointing that it has taken this long,” Goldfield said. “I don’t see any obstacles.”
Dover, advised by NM Rothschild & Sons Ltd., hasn’t decided whether it prefers an auction or initial public offering, Goldfield said. While proceeds will go to the state, the end of trust status would allow the port to borrow in its own right, though the CEO said he favors outside tie-ups, possibly with a Community Trust holding a minority stake.
“What we’re looking for is a partner, or partners, who will take a long-term view,” he said. “There’s a lot of good money out there looking for a home and a good infrastructure business like ours will attract a lot of interest.”
The CEO declined to put a value on the port, though said it should attract a premium because of its strategic position.
Dover sits at Britain’s closest point to mainland Europe on a shipping lane that’s one of the world’s busiest, used by more than 400 commercial ships a day, according to the U.K. Maritime and Coastguard Agency. The location has ensured its importance since Roman times. Richard I of England, known as the Lionheart, left from Dover on the third crusade, James I granted a royal charter in 1606 and the town features in William Shakespeare’s “King Lear” and the World War II song, “White Cliffs of Dover.”
Dover is “a major asset” with potential for long-term growth in volumes that needs to be accommodated, said Neil Davidson, a Drewry Shipping Consultants Ltd. analyst in London.
“As a trust port they’re very restricted and need a change of ownership,” he said. “The logical choice is an infrastructure investor looking to stay long term. Dover is a good cash- generating business with a strong market position, so it ticks a lot of boxes and would command a price at the top of the range.”
Forth Ports Plc accepted a 746 million-pound cash bid from Arcus European Infrastructure Fund 1 LP in March that was equal to 13 times earnings before interest, tax, depreciation and amortization. Dover, with Ebitda of 22 million pounds last year, would be worth almost 300 million pounds on that basis.
Forth Ports was the U.K.’s last listed operator following the takeovers of Associated British Ports Holdings Plc, PD Ports Plc and Peninsular & Oriental Steam Navigation Co., owner of 29 container terminals including Tilbury and Southampton, which was bought by Dubai-based DP World in 2006 for $6.8 billion.
Still, Dover’s passenger traffic has never fully recovered from a collapse after the opening of the Channel Tunnel in 1994, making it increasingly reliant on the truck business.
Last year’s total of 13.2 million people was almost 40 percent lower than the record of 21.5 million set in 1997 and 600,000 below the figure for 1985. The Channel Tunnel carried 17 million passengers in 2010, 9.5 million on Eurostar Group Ltd. express trains and 7.5 million on Eurotunnel shuttles.
Dover’s slump in passenger-vehicle trips has been steepest for buses, with the number dropping 48 percent since 1997 to 86,000 in 2010. Car numbers are down 21 percent to 2.82 million.
“The Channel Tunnel completely reconfigured the passenger market and then cheap flights had another go,” said David Whitehead, CEO of the London-based British Ports Association. “There are signs of passenger numbers increasing again, but the core of the business is freight.”
Truck numbers at Dover have increased more than 30 percent since 1997, giving the port as much as 70 percent of the road- freight market versus 30 percent for Eurotunnel, Goldfield says. “Very, very aggressive pricing” has recently pushed the train’s share toward 40 percent, he said, aided by a time advantage of 55 minutes versus a sea crossing with P&O Ferries.
Eurotunnel carried 310,074 trucks in the first quarter, up 30 percent from a year ago, while the number using Dover ferries fell 3 percent to 522,835, giving rail a 37 percent share.
“They’ve recovered from the fire of a couple of years ago and made a statement that they want to get their market share back and will price accordingly,” he said. “But that’s pretty unsustainable. They won’t be able to keep it up for too long.”
Fabienne Lissak, a Paris-based spokeswoman for the tunnel operator, declined to comment yesterday. The stock fell 1.7 percent today, paring gains this year to 14 percent and valuing the company at 3.95 billion euros ($5.6 billion).
P&O spokeswoman Michelle Ulyatt said that while freight growth slowed during the recession, positive projections drove a decision to buy bigger ferries including the 180 million-euro ($255 million) Spirit of Britain, which entered service in January, and sister ship Spirit of France, due in September.
“The aim is to pick up the growth in the freight market,” Ulyatt said. “We need to be prepared when the economy improves.”
Goldfield, formerly a Royal Air Force squadron leader and manager of Hong Kong’s former Chek Lap Kok airport, reckons making the port private would also allow it to expand abroad. Dover will sign an outline deal next month to advise Keelung port in Taiwan on planning and ship operations, he said.
“Given the freedom, and with the right partner, we see acquiring things and partnerships as the way to grow the business,” Goldfield said. “Asia is an obvious place to look.”
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