Kloster Cruise has to navigate a new course as AEA Investors pulled out of the deal to buy Royal Cruise Line and Royal Viking Line. The $565 million that would have been obtained from the deal was supposed to have bought new ships for Norwegian Cruise Line and reduced the company’s significant debt burden.
A 1991 deal with Overseas Shipholding Group also fell through.
In the meantime, Kloster still owns three of the strongest brand names in the business, NCL, RCL and RVL. It will be up to Adam Aron, CEO, to capitalize on these assets.
AEA said it has concluded that its investment aims for the two lines could not be achieved within the financial framework proposed.
Last December (1993), Kloster Cruise and AEA announced that they had signed a letter of intent for AEA to acquire RCL and RVL for $565 million, including the assumption of $60 million of advanced ticket sales.
Aron said at the time that the sale would allow Kloster to refocus on establishing NCL to the preeminent leading industry position it enjoyed for much of two decades, and would provide Kloster with the resources necessary to immediately execute their plan to significantly expand the NCL brand and fleet.
A spokesperson for AEA said at the time that AEA believed the RCL and RVL brand names represented the finest products in the luxury segment of the cruise industry.
AEA seemed prepared to pay $505 million for RCL and RVL; Kloster had previously paid $240 million to acquire RVL in 1984 and $225 million for RCL in 1989.
When the AEA announcement was made the shares of VARD, parent company to Kloster Cruise, began to climb on the Oslo stock exchange and went as high as NOK 64.50 before falling below NOK 50 when the deal was called off.
There may not be a lack of other suitors. The December announcement that AEA would acquire RCL and RVL followed weeks of reports that the two cruise lines were for sale.
Previous discussions were reportedly held with the Radisson Group as well as former Kloster executives Erland Raastad and Torstein Hagen, representing investment interests.
Cunard Line has also been noted among those interested, and Crystal Cruises had previously admitted an interest in the Sun Viking.
Even Carnival Cruise Lines and Royal Caribbean Cruise Line are possible suitors. While RCCL may be a long shot, Carnival could be interested in Royal Viking Line, shoring up its involvement in Seabourn Cruise Line.
That would still leave Royal Cruise Line, however, which could revert to Greek ownership.
Somewhat unfairly, analysts and media in the United States and Norway have painted a pessimistic picture of the outlook for the Kloster cruise group.
Headlines have ranged from “Cruise Titanic” to “Kaput” neither which would lead to any positive associations.
But it is to be expected that if Kloster struggled before, the company is likely to face even more of an uphill struggle now.
It is likely that once Kloster announced the pending sale of two of its divisions, travel agents and passengers are likely to gravitate to more stable operators.
It is also true that Kloster struggles with a huge debt burden and needs cash infusion if it wants to stay among the industry leaders.
All this, plus the many changes of top management in the past is unlikely to foster company morale and/or boost travel agent confidence.
What is puzzling is how an organization of AEA’s reputation could go into a deal and then suddenly find that the numbers don’t add up and/or that it suddenly does not want to be in the cruise industry. It is hard to believe that AEA did not do its homework ahead of time.
It is also puzzling how this can happen twice to the same company. Kloster was turned down by OSG two years ago and now by AEA.
Hopefully, Aron will face up to the challenge of setting a new course for this company correcting all the seeming blunders made by past managements and owners.
Kloster Cruise still owns three of the strongest brand names in the industry. Other companies have grown successfully starting with a lot less.