Carnival Reaches Royal Caribbean Purchase Agreement

Carnival Cruise Lines confirmed at presstime that the “Fun Ship” cruise line had reach an agreement to purchase a 70 percent interest in the parent companies of Royal Caribbean Cruise Line and Admiral Cruises for $550 million in cash.

The seven-ship cruise line, which recently announced that it had entered into an agreement to purchase about 36 percent of the companies that owned RCCL and Admiral, said that the only restriction awaiting full completion of the expanded deal was a 30-day waiting period under the U.S. Hart-Scott-Rodin law.

A spokesman for the “Fun Ships” cruise line confirmed that Carnival will now acquire the total cruise interests of Gotaas-Larsen for about $275 million, J.M. Skaugen for some $232 million and the interests of Johnson Line AB and Effoa/Steamship Co.

While I.M. Skaugen Supervising Director Kato A. Holmsen said that “we were forced to sell” when he confirmed the agreement, Holmsen refused to elaborate and officials at Arders Wilhelmsen were meeting in closed door sessions last week and refused to comment on the purchase at presstime.

Wilhelmsen is a Norwegian-based shipping conglomerate that will continue to own the remaining 30 percent of the Royal Admiral Cruises holding company once the Carnival acquisition is finalized in 30 days.

A Carnival spokesman said that Carnival would continue to operate Carnival, RCCL and Admiral as separate cruise lines and had no intention of merging their operations in the future.

The Carnival spokesman said that the agreement between I.M. Skaugen and Wilhelmsen earlier this year to merge and to form a joint holding company was, indeed, subject to Norwegian government regulations. He noted that Norwegian government approval was required in that transaction because all companies are Norwegian-based and said he expected final approval by the end of the year.

President Mickey Arison said that Carnival expects to continue to operate all five ships that are now operated by RCCL to continue to be registered under the Norwegian International Registry. Arison added that the latest Carnival expansion would have no effect on Carnival’s plans to build three 45,000-ton sister ships in the 700-passenger range in the luxury end of the North American cruise market.

Dr. Stanley Buchin, president of the Boston­ based Temple Barker & Sloane market research firm said that acquisition of the controlling== interest in both RCCL and Admiral should give Carnival a profitable means to create “natural upgrades.” RCCL currently operates a total of five-ships in the 7-, 8- and 10-day Caribbean market and Admiral operates two ships in the 3- and 4-day markets and one 7-day vessel.

Buchin explained that younger cruise passengers could “graduate” from Admiral’s 3- and 4-day sailings to the Bahamas and northern Mexico, to Carnival’s 7-day swinging “Fun Ships,” to RCCL’s more subdued 7-, 8- and 10-day sailings. He said that it “would seem to be a more natural progression from Admiral to Carnival to RCCL than from Norwegian Cruise Lines to Royal Viking Line.”

“Admiral could become a good ‘feeder’ line to Carnival because Admiral could be positioned to attract younger passengers who could gradually move up to Carnival ships when they become 35 or 40,” Buchin said. “Then there wouldn’t seem to be that much of a jump from the Carnival ‘Fun Ships’ to the more subdued RCCL ships when those passengers turn 50 or 55.”

Buchin also said that the new 15-ship cruise position to capitalize on the inherent economies of scale that apply to the industry because of relatively fixed operating costs. He explained that Carnival industry conglomerate should be in a powerful bargaining position to negotiate volume rates for everything from airlift, to food, to fuel to water and linens.

Buchin said that Carnival’s continuing expansion plans “are just further Proof” that the cruise industry is rapidly moving in the direction where five or six large operators will dominate the industry. He said that the continuing consolidations and mergers would also create “several niches” for those cruise lines with “something unique like adventure, exotic or very luxurious products.”

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