Friday, August 22, 2008

Ports of Auckland put a shot over competitor's bow

The news on Wednesday that Ports of Auckland have an interest in Port of Tauranga Ltd [POT.NZ] "container business" brings to mind this quote by Warren Buffett:

"Buy a business that an idiot can run, because sooner or latter an idiot will run it"

In this case the idiot or idiots are management at Ports of Auckland.

They fit the idiot moniker simply because they had a chance to merge with POT in 2006-07 and after much posturing by both sides, but mostly from Ports of Auckland, POA simply walked away from a possible deal because management couldn't deal with the fact that Port of Tauranga was worth more than Ports of Auckland and wouldn't budge from that stance because of petty local politics.

The Auckland port company like the look of Port of Tauranga's container facilities at Onehunga on the Manukau Harbour which is south of Ports of Auckland's main port on the Waitemata.

Unlike Auckland's big port in Auckland's CBD, POT's Onehunga container hub has scope for expansion and is in a area of high industrial growth and also close to Auckland Airport [AIA].

Port of Tauranga chief executive Mark Cairns wasn't keen on the idea of Ports of Auckland buying the Port of Tauranga container business but had this to say about a marriage between the two port companies.

"...always held the view that a full merger of Port of Tauranga and Ports of Auckland makes very good sense. That view has not changed"

Cairns is clearly right.

New Zealand is a very small market and it would make financial and logistical sense to merge the two businesses.

The capital expenses of expansion to encompass the much larger ships that shipping lines want to use would make the merger of these two ports sensible to say the least.

Port of Tauranga are in the box seat though. Their company has more geographical space for expansion at their locations and that is one reason why POA want them. The company is leaner and better managed and last but by no means least they are unencumbered by the politics that surround the ratepayer owned Ports of Auckland.

Port of Tauranga shareholders shouldn't lose all hope though and shouldn't think of selling their shares, yet.

It looks like the shots across the bow have just started, Ports of Auckland new managing director Jens Madsen says he wants to "buy POT's container business" and Port of Tauranga chief executive Mark Cairns reckons that portion of his business is "...worth substantially more than Ports of Auckland's container business".

Whatever the case it looks like this is the beginning of some sort of marriage process and it will no doubt send the POT share price in a northerly direction.

Lets hope the dropkicks at Ports of Auckland can let politics take a back seat to business acumen this time.


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Ports of Auckland put a shot over competitor's bow

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c Share Investor 2008