Land value holds key to ports

Undeveloped land owned by Forth Ports has emerged as the wild card in the company's valuation as a group of shareholders attempt to take Britain's last remaining listed port operator private.

Shares in the British ports company jumped more than a fifth in value earlier this month after a shareholders' consortium, dubbed Northstream, said it had offered as much as 1,340 pence per share to take it over.

While investors usually look at a port's long-term contracts and world trade projections, its freehold makes Forth Ports a unique, quality asset among ports in the market but also makes it very difficult to value, industry sources say.

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The land valuation disclosed by the company rose steadily since 2002 to more than 400m in 2007 before collapsing in 2008 to less than a quarter of its value as the property market slumped.

Following its rejected 612m bid, Forth Ports management has agreed to meet Northstream after the company's results on March 22. The company's share price indicates that investors believe a new, higher offer will be forthcoming. Including debt, the last offer equated to about 14.5 times the 56m that UBS estimates Forth will earn before interest, tax, depreciation and amortisation in 2009.

Northstream consists of experienced port investors – Arcus Infrastructure, born out of the demise of Babcock & Brown's European infrastructure business through a management buyout, Britain's Peel Group and Deutsche Bank's RREEF.

The e2bn Arcus European Infrastructure Fund 1 holds a 23.4 per cent stake in Forth Ports having first bought into the company at the start of 2008 in more expensive terms, when Forth's shares were trading close to 2,100 pence.

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Hopes for a full-blown bid were then dashed later in 2008 by the demise of Australia's Babcock & Brown as it fell victim of its debt burden and complicated shareholding structures. Arcus ended up with a stake in Euroports, one of Europe's largest port operators, which it bought during Babcock's restructuring. Peel Group, owned by Lancashire-born property tycoon John Whittaker, has a 3.5 per cent stake in Forth Ports and owns ports in north-west England, in the west of Scotland and south-east England.

RREEF Infrastructure has just 0.5 per cent but owns 49.9 per cent of Peel's ports. It bought Maher Terminals, an operator of port terminals in New Jersey and British Columbia, and stakes in ports in Australia and Europe.

Forth Ports operates five ports on the Firth of Forth and Tilbury in London, but also owns a shopping centre at Edinburgh's Leith Docks.

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