Saturday, February 16, 2002

Princess cruise merger on hold

Shareholders look at Carnival bid

By Bruce Stanley
The Associated Press

        LONDON — With its planned marriage to a U.S. rival now on hold, P&O Princess Cruises PLC is expected to come under intense pressure to talk with Carnival Corp., the No. 1 cruise operator whose $5.4 billion bid for Princess sparked a shareholder revolt.

        Carnival won a tactical victory Friday after Princess shareholders voted to postpone a meeting to decide whether to approve their company's proposed merger with Royal Caribbean Cruises Ltd. A 62.5 percent majority of investors chose to adjourn the meeting to give competition regulators in the United States and Britain more time to review Carnival's bid alongside the proposed merger.

        “We are committed to giving P&O Princess shareholders the opportunity to accept our increased offer, and we will focus all our efforts on securing regulatory clearance,” Carnival Chairman Micky Arison said after the votes were counted at 5 a.m.
        Princess insists that Carnival's bid is unlikely to survive regulatory scrutiny. It argues that regulators are more likely to approve its proposed merger with Royal Caribbean.

        Analysts estimate the Royal Caribbean merger to be worth about $3.7 billion for Princess shareholders.

        “What the shareholders were saying is that they wanted more time to consider the alternatives. I don't think they were choosing between them,” Princess chief executive Peter Ratcliffe said.

        Royal Caribbean shareholders called off a parallel meeting in Miami on Friday morning after learning the outcome of the voting in London. Royal Caribbean chairman Richard Fain said he was “obviously disappointed.”

        “However, we have to acknowledge that a shareholders' vote is a democratic process, and naturally we respect the decision that has been reached at the P&O Princess meeting,” he said.

        Although Mr. Fain suggested last week that his company might walk away from the merger if Princess shareholders delayed their decision, Royal Caribbean would face a $62.5 million break-up penalty if it did so before Nov. 16.

        “At this stage, it's not in their interest to walk really because it's not clear that shareholders have voted 'no' to a merger,” said David Liston, a transportation analyst at the London brokerage firm Gerrard.

        Royal Caribbean, based in Miami, is the world's second-biggest cruise operator with 23 ships and an estimated 22 percent market share. Princess ranks third with a 13 percent share of the global market and 18 ships.

        Carnival's 43 ships give it a 27 percent share of the estimated global market for 2002, according to U.S. brokerage firm AG Edwards. By buying Princess, it would scupper the competitive threat of a merger and become the industry's unassailable leader.

        Business for all three companies foundered after the Sept. 11 terrorist attacks, and each is determined to cut costs and boost profits.

        Princess has refused to talk with Miami-based Carnival about its hostile bid, which Carnival already has sweetened three times.

        A key challenge for Princess is to ensure that any approach to Carnival doesn't violate its merger agreement with Royal Caribbean.

        If it did, Princess probably would have to pay the $62.5 million penalty. The merger agreement restricts either company from approaching a third party.


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