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RCCL/Admiral to Combine Forces

The merger of Royal Caribbean Cruise Line and Admiral Cruise Line will create the largest cruise company in the North American market, with eight ships and nearly 10,000 berths.

In addition, Admiral has a newbuilding under construction, and RCCL is entertaining shipyard talks for a new ship in the Sovereign of the Seas category.

The immediate result of the merger, which is still pending formal Norwegian government approval, would create a holding company, so far known as “Newco” that would own both cruise lines.

According to statements issued in Miami and Oslo, both lines will retain their separate identities and operate independently. One of the main reasons given for the merger is the cost effectiveness both lines stand to gain in marketing. In addition, it is expected that both lines will benefit from belonging to a larger group with a stronger financial base and offering a broader, more diverse range of products.

Speculation is already underway that the new holding company will make a public offering in the United States.

The holding company should have a net worth of about $500 million. Gross revenues for 1988 are estimated at about $470 million.

According to RCCL, the line has a 12-to 13-percent share of the cruise market, and the new company will have a market share closer to 15 percent.

Richard Fain, Director of both RCCL and Admiral, will head the new company as Chairman and Chief Executive. The common denominator in the deal is Gotaas-Larsen which is majority shareholder in Admiral and one of three partners in RCCL. Gotaas-Larsen owns RCCL jointly with I.M. Skaugen and Anders Wilhelmsen, and Admiral with Johnson Line, Finland Seamship, Oceanic Finance and McDonald Enterprises.

When the merger is finalized, it is expected that the Admiral owners will have about 10 percent in the new company, and the RCCL partners will hold the balance with the two Norwegian shipowners holding 25 percent each, and Gotaas-Larsen about 40 percent.

Merger Commentaries:

The creation of the largest cruise company in the world was viewed by several industry executives as a cagey financial move that should give both cruise lines the financial backing to bolster their expansion plans.

The new holding company, which will control nearly 10,000 berths, was also seen as a way that RCCL could position itself against Carnival Cruise Lines through a “natural upgrade” of passengers from Admiral to RCCL.

Several industry leaders speculated that RCCL should soon be in the position to help fill a growing fleet because Admiral will help supply more “first time” passengers to its new sister company.

While one industry leader insisted that “there’s absolutely no evidence” to show that first-time cruisers are very truly upgraded, a top marketing executive countered that the situation is very similar to Carnival’s plans to upgrade its current first-time base to its new fleet of ships through the Tiffany project.

The marketing executive predicted that it was also inevitable that RCCL and Admiral would not only exchange past passengers lists but would also consolidate most of its sales and reservations functions to help the new company’s thrust to economize on scale.

Several other industry officials said that the creation of the holding company only makes sense in a financial way because Admiral will never be in the position to supply RCCL with a large list of upgraded passengers. Those same executives did stress, however, that the new holding company should definitely give both cruise lines the additional financial collateral to bargain more effectively with banks for their stated expansion plans.

An Admiral spokesman pointed to added financial “clout with banks, access to past passenger lists and some future upgrade programs from Admiral to RCCL as the rationale behind the new company. He predicted that it would be several years before there would be any consolidation of sales and reservations functions at the two “separate and distinct” cruise lines.

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