Dealwatch: Dubai

But back to Dubai. Its government-owned entities, as The Deal's Paul Whitfield tells us, are linked with the personal assets of its ruler, Sheikh Mohammed bin Rashid al-Maktoum. In terms of buying power, its assets are far less than that of its neighbors. DIC has $5 billion to $10 billion in holdings, says the region's Gulf Research Center, while Qatar Investment Authority has $40 billion, Saudi Arabia possesses $250 billion across funds, and Abu Dhabi Investment Authority has $600 billion to $700 billion worth.

So what's a state to do? Adopt a Western private equity-style of investment, relying heavily on debt, and go after big-name brands, thereby opening the doors to would-be buyers, Whitfield writes:

Yet it is not only economic necessity that has driven Dubai into the dealmaking spotlight. "There seems to be an element of marketing to their acquisitions," says [Eckart Woertz, economic program manager at the Gulf Research Center]. "Dubai wants to raise its profile as a financial hub and this [bidding for high-profile assets] is one way to do it."

A snapshot of battles of late:

EXCHANGES:

• The Emirate's stock exchange operator, Borse Dubai, jumped in earlier this year and tried to scupper a deal between Nasdaq Stock Market Inc. and its agreed-to target OMX AB.
• Eventually, the two made nice with Dubai agreeing to take both Nasdaq's 28% stake in the London Stock Exchange Group plc (which it was trying to dispose of) and a 20% interest in the Nasdaq itself.
• The agreement enabled the U.S. exchange to proceed with its planned 25.1 billion Swedish kronor ($3.7 billion) OMX takeover (letting Borse Dubai proceed with its own offer, then exchanging 60.6 million Nasdaq shares and paying nearly $1.7 billion in cash for the exchange) and take a small interest in Borse Dubai.
• Through the deal, Dubai became the first Middle Eastern government to have a stake in a U.S. exchange.

But, it may not be over.

The Qatar Investment Authority, a fund controlled by the Middle Eastern state, which had been expected to pick up the LSE stake, revealed Sept. 20 it had acquired 20% of the exchange's shares. While the fund said it did not intend to make an offer for the LSE, it reserved the right to change its mind if a third party came in. In another statement, it also revealed a 10% holding in OMX, which could thwart Nasdaq's takeover plans. To guard agaist such a situation, Nasdaq and Borse Dubai Sept. 26 sweetened their offer by nearly 15%.

• On a related note, Dubai International Financial Center in April 2006 said it had secured a 1.67% stake in Euronext NV, which at the time sparked debate it could be mulling a bid for the operator of five exchanges.
• Earlier in 2007, the investor on May 16 unveiled it has acquired a 2.2% stake in Deutsche Bank AG through a $1.8 billion deal, as part of a plan to spend more than $2 billion on acquisitions, including buying a stake in a Western European financial services firm.
• The news followed a May 1 announcement it had taken a stake in HSBC Holdings plc for undisclosed terms.

BATTLING FOR BARNEYS

In August, Dubai-controlled private equity house Istithmar PJSC won a bid-off with Japan's Fast Retailing Co. for luxury department store chain Barneys New York.

• Istithmar said in late June it would pay $825 million for Barneys.
•  But as the deal was nearing its close, Fast Retailing swooped in with a $900 million bid for the Jones Apparel Group Inc. subsidiary on July 31.
• Istithmar then matched the figure Aug. 5.
• Fast Retailing bumped its proposal to $950 million.
• Istithmar then raised its own offer to $924.3 million Aug. 8, a figure it deemed superior, because a sale to Fast Retailing would have entitled Istithmar to a $34.7 million breakup fee.
• The Japanese group had until 5 p.m. Aug. 9 to counter the offer and instead withdrew.

The deal follows a $300 million play for Loehmann's Holdings Inc. in May 2006. Istithmar picked up the department store group from Atlanta's Arcapita Inc., the private equity arm of Bahrain-based Arcapita Bank BSC. Istithmar is also a major shareholder in Time Warner Inc., and Istithmar was believed in 2004 to be considering buying a stake in Gianni Versace SpA, as were buyout shops Apax Partners, Cerberus Capital Management LP and CVC Capital Partners.

AND FOR THE PORTS:

And in late 2005, the battle of them all began: the DP World ports saga.

The company unveiled a £3.3 billion ($5.7 billion) deal for British port and ferries group Peninsular & Oriental Steam Navigation Co. on Nov. 29 to take advantage of a boom in container shipping. Given P&O's operations at six U.S. ports in 2006, the deal, which was initially approved by CFIUS, the agency that reviews foreign ownership in U.S. companies, drew fire on Capitol Hill, raised questions of national security and eventually led to a bill President Bush signed earlier this year targeting CFIUS reform. DP World sold the U.S. assets to AIG Global Investment Group Dec. 11, 2006.

Unfazed, a DP World senior executive said Oct. 4 the company was considering selling a minority stake in itself via an IPO, which could value the ports operator up to $20 billion.

M&A FLURRY

Other deals throughout 2007 include expressly declared efforts by various state-controlled entities to deploy large sums of capital and have an array of targets.

• Las Vegas casino group MGM Mirage Inc. agreed in August to sell a stake in the company and half a development project for $5 billion to Dubai World.

  • Among other projects, the Middle Eastern investment holding company has a golf development with Greg Norman Golf Course Design and an interest in Kerzner's Atlantis resort in the Bahamas. Through portfolio business Nakheel LLC, it has a joint venture with Donald Trump's Trump Organization to develop real estate throughout the Middle East.

• In July, Dubai International Capital bought into Airbus maker European Aeronautic Defence and Space Co., valuing Eads NV at $800 million, as it scouted investments for its $2 billion Global Strategic Equities Fund.
  • Dubai International in May 2006 bought Travelodge Hotels Ltd. from Permira for $1.3 billion and sparked speculation it could return once-public Travelodge Hotels Ltd. to the London stock market when it chooses to exits its investment.
  • In March 2006, Dubai International said it would pay £700 million for British engineering company Doncasters Group Ltd., which despite the fact it operates a Georgia tank parts maker, spurred little controversy in Washington upon approval a month later, despite the DP World saga.
  • Dubai International in 2005 made a $1 billion investment in DaimlerChrysler AG. In April, Dubai Aerospace Enterprise Ltd. affirmed long-standing rumors it would buy Standard Aero Holdings Inc., paying $1.8 billion in cash to Carlyle Group.
• Dubai-based Emaar Properties PJSC said June 1, 2006, it acquired Newport Beach, Calif.-based homebuilder John Laing Homes through a $1.05 billion cash deal to create one of the world's top residential developers.
• Dubai Ports International made its first major acquisition outside the Middle East Dec. 9, 2004, with a $1.15 billion agreement to buy Charlotte, N.C.-based CSX World Terminals LLC, a global marine terminal business.

As The Deal contributors James Rosener and Spencer Abraham concur, there is money to spend, and it has not been lost on cleantech:

The Dubai-based GCC Energy Fund has taken the initial step as the region's first buyout fund focused on the energy sector. ... The firm has already announced traditional and alternative energy investments in Maritime Industrial Services Co. Ltd., the purchase of a stake in Stellar Energy Middle East, the acquisition of a controlling interest in Dhofar Power Co. and the purchase of an equity stake in the Gulmar Offshore Group. Furthermore, the noteworthy success the fund has achieved in such a short period is attracting regional and international PE firms to the Middle East energy sector.

GETTING OUT

On the exit front, DIC earlier this year sold its Tussauds Group to Blackstone Group LP for £1.03 billion in cash and a 20% stake in Blackstone's Merlin Entertainments Group Ltd. leisure division. DIC bought the famed wax museum company in 2005 for £800 million.

CAN'T WIN 'EM ALL

George Gillett made a play for the Liverpool Football Club and Athletic Grounds plc, but he was pushed away on Dec. 4 when Liverpool said it had entered into exclusive talks with DIC. On Jan. 31, the club's board chose not to recommend the proposed offer to shareholders, and Gillett, who had earlier signed up Tom Hicks as a partner returned to the bid table. Dubai abandoned its pursuit and Gillett came back to ink a $429 million deal Feb. 6.

And as it thinks big, Dubai itself is redeveloping, with grand ambitions of the world's tallest five-star deluxe hotel, as well as largest man-made marina and island.

BIG BROTHER

And then there's Qatar, which controls with Dubai a $1 billion investment vehicle, and, as Whitfield points out, has "ambitions to become their region's dominant financial [center]." The battle between the two over OMX and Nasdaq is certain not to be the last.  —Carolyn Murphy