Expansion Goals Spur IPOs

Until last July, Regency Cruises was the only publicly-held cruise line. According to published reports, there may soon be four.

American Cruise Lines (ACL) went public last July and Bermuda Star Line will begin offering shares sometime this month, according to public records. Spokespeople for both companies said that expansion plans were the roam reasons for their offerings.

Kloster Cruise, which is a public company in Norway, has announced that it may also also seek U.S. investors.

According to brokerage sources, however, the price of cruise line stocks is not likely to rise significantly. Crowded markets and stiff competition resulting in increasingly higher promotional expenses, tend to dilute bottom lines, they said. The situation is further compounded by the fact that cruise lines traditionally carry heavy debt, they added.

“Time is Right For Small Ship Expansion”

ACL Chairman Charles Robertson said it is time to expand in the small ship category. He believes the large ship market, especially in the Caribbean, is reaching saturation and that there will be big winners and big losers in the next three to five years.

“If I were a large ship operator, I would go toward smaller ships because that is where the growth potential lies,” he said, pointing to Anheuser Busch’s acquisition of Exploration Cruise Lines as a sign CIN that the small cruise ship market is ripe.

CIN also has learned that several buyout offers, one reportedly for eight figures, have been turned down by Society Expeditions Owner T.C. Swartz.

In the prospectus released July 9, 1986 by Advest, ACL’s principal underwriter, 507,500 shares are being sold by the company and 217,500 are being sold by Robertson. Part of the estimated $4,435,550 raised from the company’s sale may be put toward the new M/V Charleston expected this spring. The remaining proceeds might be used to reduce debt or to reinvest in money-market instruments, or both, according to the prospectus. The company will not receive any of the proceeds from the sale of Robertson’s shares, estimated in the prospectus at $1,900,950.

In a recent interview, ACL President Seymour Smith said the public offering will help finance expansion plans that include adding a new ship every 18 months for several years.

The prospectus shows that the cruise line lost money for the two nine-month periods ended March 31, 1985 and 1986. With the sale of the line’s ships, Independence and Island Clipper (formerly American Eagle), in 1985, however, the line showed a net profit for fiscal 1985.

Drew Beja, Advest analyst, said the cruise lines’ numbers for the last few quarters have been “disappointing,” but he expects them to improve steadily, especially when the Charleston comes on line. “Stocks should earn 30 cents per share by the end of June,” he predicted.

Beja said the stock, originally offered at $9.50 a share and selling at press time at $3.50, is undervalued. “I estimate the break-up value of American Cruise Lines at about $5.50 per share,” said Beja, who noted that the current price of the stock reflects a 10 percent dividend paid to stockholders December 17.

Robertson, who had retained a 66 percent interest, waived his right to receive his dividends, leaving the public stockholders with more money, and reducing his ownership to 63.5 percent, Beja added.

According to the prospectus, ACL merged, in 1984, with Transportation Systems, Inc, a company that provided it with accounting and administrative services. In the same year, it also merged with its advertising/PR firm, Bennett, Spangler and Shallcross, Inc. In May 1986, American Line, Inc., which had as its only activity the leasing of ships to American Cruise Lines, also merged with the company.

Charles Robertson founded American Cruise Lines in 1973 under the laws of the state of Delaware. He is the sole stockholder of Robx, Inc., which holds all the stock of C.A. Robertson, Inc., Chesapeake Shipbuilding, Inc. (currently building M/V Charleston), New England Steamboat Lines, Inc., and Williams and Manchester Shiyard, Inc., among others. Great pacific Cruise Lines, Inc., which offers luxury cruises on the two ships it bought from ACL is also owned by Robertson and officers of American Cruise Line.

Bermuda Adding “One Ship Per Year”

Bermuda Star Line has made the decision “to grow rather than wither away,” according to Donald Caldera, chairman of the line. He said he expects the offering to help finance expansion of the line by one ship a year, to at least seven ships.

According to reports, Bermuda Star Line is close to making a deal with Epirotiki for the 525-passenger World Renaissance, although Epirotiki denies that the ship is for sale.

Bermuda Star Line’s preliminary prospectus, released December 4, 1986 by principal underwriter Drexel Burnham Lambert, states that of the 1.5 million shares offered to the public, the company will sell 875,000 and its parent company, Common Brothers Plc, will sell 625,000. The price per share is expected to be between $6.50 and $8.50. However, the company is prohibited from paying its shareholders any dividends in the foreseeable future, due to certain loan agreements, according to the prospectus.

The prospectus also states that up to $3.5 million of the proceeds from the company’s sales will be used to acquire a third ship. Approximately $800,000 will be used to increase collateral for a bank obligation and the balance of the proceeds will be added to the company’s working capital. Bermuda Star Line will not receive any proceeds from the sale of Common Brothers’ shares.

Common Brothers PLC, a 100-year-old maritime company traded on the London Stock Exchange, will retain control of Bermuda Star Line, with 58 percent. It, in turn, is 55-percent owned by Norex Corporation Limited, a Bermudian company whose shares are owned by Bermuda Star Line Director Kristian Siem and his family.

According to the prospectus, Bermuda Star Line made over $1.8 million in fiscal 1986, but incurred combined net losses of over $6.5 million for the fiscal years of 1985, ’83 and ’82. The line blamed the $2,286,000 loss in 1985 to a drydock accident which kept the Veracruz out of service for a portion of the year, and contributed to high advertising costs and a general disruption of company affairs.

Bermuda Star Line was formed by Common Brothers as a Cayman Islands corporation in October 1980. It owns the Veracruz and leases the Bermuda Star from Billingshurst Shipping Ltd. of Liberia.

Both American Cruise Lines and Bermuda Star Line are offering shareholders discounts on cruises.

Other Lines Going Public

CIN has learned that Kloster Cruise may also be seeking capital in the U.S., but it is not known when or if the company will apply for public status. It said expansion was the reason for going public in Norway.

Regency Cruises went public six months after its formation in November 1984. Offering 6.5 million units, consisting of one common share and one warrant at $1 per unit, the offering netted the company $5.5 million.

The company lost $1.26 million in the months before the Regent Star sailed, due to heavy start-up costs, In the final 45 days of 1985, however, profits from the cruises and interest income prevented further losses. In the period ended March 31, 1986, the company reported profits of $984,000 on revenues of $10.37 million. Earnings per share were six cents.

Regency now sells its shares and warrants separately. In July, 1986, a share of common stock was $1.56 and a warrant was 47 cents. At press time, shares were selling for $1.47 and warrants at 19 cents, down from yearly highs of $2 and 47 cents. Ownership in several cruise lines is available indirectly through parent companies, mainly overseas. In the U.S., however, Anheuser Busch (Exploration), Greyhound (Premier), and Marriott Corp. (Sun Line), among others, are traded on the New York Stock Exchange.

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