Forth Ports, going, going gone?

It would be foolish to think that only Babcock & Brown has looked at Forth Ports, there are undoubtedly other funds that are looking behind the scenes. The question is really whether the 23% stake that Babcock & Brown has already acquired, much of this from Goldman Sachs, is enough to deter another interested party? We will see – it depends on who else is prowling.

Forth Ports, an entity in the mould of the Peel Ports organisation engaged on the one hand in conventional port business and on the other in very large scale property development, has allegedly called on Babcock & Brown to “put up or shut up” but at the time of writing, towards the end of January, there has been no tangible response. No surprises there perhaps, it is fairly normal to “keep your powder dry” when targeting an acquisition.

Currently, Babcock & Brown is just 7% short of the equity stake level that would automatically trigger a bid under London Stock Exchange rules. In value terms, analysts suggest that it is quite feasible that Babcock & Brown may be prepared to pay up to £24.30 per share to acquire the company valuing Forth at £1.1bn. Rising sales and profits, it is suggested, would justify such a bid. Further, looking down the track there are a number of appealing things about Forth Ports, including:

– The port of Tilbury in London, which the group owns, is set to enjoy bonus cargo levels as a result of fulfilling the role of a hub for the 2012 Olympics in nearby Stratford.

– To facilitate future traffic growth at Tilbury Forth Ports has recently exchanged contracts to acquire 65 acres of land close to the port.

– The group’s property unit, in talks with City of Edinburgh Council on the Leith Docks Outline Planning Application, submitted in September and comprising a vast scheme, has achieved all the milestones which were set for this year. A masterplan is close to being finalised and a formal submission of the Outline Planning Application is expected in the first half of this year.

And generally it is true to say that on both the port and property sides of the business there remains significant scope to further bolster trading activity. In the port sector, the new Grangemouth Distribution Hub is one example of this – effectively this represents a move into the logistics chain which could basically serve to consolidate existing cargo flows through the port and to attract significant new cargo volumes.

At Tilbury it is also fair to say that the port will continue to profit from the non-delivery of new port capacity in the South. There are no tangible signs yet as to when construction work will start on Felixstowe South or the London Gateway project, and so long as these and other major port projects don’t go ahead then it is reasonable to expect that so-called second tier ports like Tilbury will profit commensurately.

Our conclusion? It’s just a matter of time before Babcock & Brown moves to gain a controlling interest in Forth Ports.