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Judge rules against port operator in stevedoring firm suit

May 28, 2021 GMT

DOVER, Del. (AP) — A Delaware judge has ruled against the company that privatized operations at the port of Wilmington several years ago in a dispute over a planned buyout of the port’s former stevedoring firm.

The judge ruled Friday that GT USA Wilmington is bound by the terms of a 2018 letter agreement regarding the purchase and sale of 100% of the equity interest of Murphy Marine Services.

Vice Chancellor Sam Glasscock III also ruled that the agreement prohibited accounting firm KPMG from considering the financial effect of privatization in its analysis of Murphy Marine’s value, as GT had wanted.

Finally, Glasscock agreed with Murphy Marine that the price point in the deal should be in the midpoint of KPMG’s valuation range.

A spokeswoman for GT USA Wilmington did not immediately respond to an email seeking comment.

The ruling comes in one of several lawsuits in which GT USA Wilmington has become enmeshed since signing a privatization deal with Democratic Gov. John Carney’s administration in 2018. Last year, a different Chancery Court judge issued a preliminary injunction preventing GT USA Wilmington from blocking access to an adjacent fuel storage terminal pending resolution of a fee dispute with the owner of the terminal.

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In March, Norfolk Southern filed a federal lawsuit claiming that it is owed several hundred thousand dollars by GT USA Wilmington for costs related to rail car storage.

GT USA Wilmington is a subsidiary of port management company Gulftainer, which is based in the United Arab Emirates. It obtained the rights to operate the Wilmington port for 50 years in exchange for agreeing to make significant upgrades and to pay the state at least $3 million annually in concession fees based on cargo volume moving through the port.

According to court records, state officials did not require GT to buy Murphy Marine, but both companies have said they felt “pressure” from the state to make a deal. The companies finalized the letter agreement in April 2018 and agreed shortly thereafter that KPMG would conduct a valuation analysis of Murphy Marine.

KPMG estimated Murphy Marine’s equity value to be between $21.5 million and $26.1 million.

GT officials were not happy with those numbers and asked KPMG to “fix its analysis,” according to court records. A key concern for GT was that the effect of the port privatization was not included in KPMG’s valuation.

“GT’s privatization of the port of Wilmington, if GT did not acquire Murphy Marine, would have a drastically detrimental effect on Murphy Marine’s value,” Glasscock noted. “GT, which is the largest privately-owned port operator in the world, could have started its own stevedoring business and shuttered Murphy Marine’s business entirely by denying it access to the port.”

In a footnote, the judge referenced internal emails indicating that GT officials knew privatization was not to be considered.

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In one email, a GT director stated that, after he requested the privatization be considered, an attorney for Murphy Marine responded that he “had crossed a line and violated (the) agreement which was to not consider privatization.” The GT official agreed that Murphy Marine’s lawyer had a “fair point,” but said “tough luck, I need to protect our position.”

In another email, a GT principal wondered whether the company should still accept Murphy Marine’s position that privatization would not be considered.

“It brings the risk of a higher price but on the other hand the value of (Murphy Marine) would be very little if privatization is fully included,” the GT official wrote. In response, another GT principal wrote “play the card of the port privati(z)ation but be reasonable. If we want to finish this(,) we should be looking at accepting a value of less than $8M, without screwing them completely.”

Murphy Marine is seeking enforcement of the binding letter agreement, which required GT to pay fair market value, as determined by KPMG, for Murphy Marine’s shares. The agreement also notes that KPMG’s decision will be “final and binding upon the parties.”

Despite the agreement, GT pointed out that KPMG’s engagement letter noted that its pricing analysis could not be used to determine the purchase price, and was intended only to provide a range of prices.

Glasscock ruled that the engagement letter supported the agreement but was not incorporated into it and did not alter its terms. He determined that the letter agreement is the “sole document” governing the sale of Murphy Marine’s shares and that it precludes incorporation of privatization in the value analysis.

Friday’s ruling paves the way for a second phase of the trial to consider other issues in the lawsuit, including what information Murphy Marine presented to KPMG for use in forming its valuation.