P&O Share Hldrs Vote for DP World Bid

http://au.biz.yahoo.com/060214/18/jdqa.html

Finally “DP World” won the battle for acquiring P&O against PSA the Singapore based port group. 99.5% of P&O's stock holders voted in favor of DP World at 520 pence per share with total value of GBP 3.9 billion (USD 6.8 billion). DP World/ P&O will become the world's second largest operator behind Hutchison Whampoa Ltd. of Hong Kong. DP World/ P&O will manage 51 terminals in 30 countries around the world, including 6 ports in the United States.

Was it a right decision for DP World to buy P&O? Nobody know the right answer yet, but lets look at it from David Porter’s 5 forces framework – barriers to entry which might give us some insight in what could be the right answer:

Economies of scale: DP World/ P&O can benefit from the economies of scale since it will have a wide network around the world, which will give them the ability to reduce their prices and making high profits at the same time. This will allow the major ports operators such as DP World to increases the barriers to entry at selective ports that has potentials in the future by reducing their prices.

Product differentiation: DP World established its name and reputation around the world by operating in several ports around the world successfully and currently by buying P&O DP World will by the second largest operator in the world.

Capital Requirements: DP World is government owned by a wealthy Emirate, DP World was successful in offering the world’s largest Sukuk issue to provide USD 6.8 billion to purchase P&O. the new acquisition will increase DP assets and its capacity.

Government policy: DP World and P&O are operating in foreign countries and dealing with foreign governments. All international ports operators are facing the risk of changing government policies against the foreign interests. But governments noticed the benefits of relying on large port operators in terms of efficiency and reliability. DP World received the approval from the US government to buy P&O which operates 6 ports in USA, national security and interest can work against the international operators at any point in time.

Intensity of Rivalry among Existing Competitors: Four companies are managing one third of the world ports. The acquisition will increase the big companies’ power and share against the locally managed ports. Big companies with wide networks are in a better position against regional competitive pressures.

Other frameworks such as Barny’s “Gaining and sustaining competitive advantage” can be discussed in relation to this topic.