The bidding game came to an end, as Carnival Corporation joined a Norwegian investor group and their $500 million bid for Cunard Line was accepted by the owner, the Kvaerner Group.
The bid is based on $375 million in cash, $50 million of debt, and $75 million in customer deposits. Thus giving a very generous per berth evaluation of $143,802 on Cunard’s ships which average 18 years in age and come in all sizes and shapes.
In addition, the deal is said to include two newbuildings to be placed with Kvaerner Masa-Yards. No further details have been made available.
Luxury Leader?
According to reports, Carnival and the Norwegian investors will form a new company, with Carnival holding a 70 percent interest, which will be listed on the Oslo stock exchange. The listing is expected to repay Carnival’s initial cash outlay and generate capital for the newbuildings. Thus, Carnival’s risk exposure is minimal. Instead, the deal will probably be profitable for Carnival from the beginning.
In addition, Carnival plans to merge Seabourn Cruise Line, in which it shares 50 percent ownership with Norwegian entrepreneur Atle Brynestad, who will be named chairman of the new company.
The combined eight-ship fleet, which will have some 4,089 berths, will be the largest in the luxury segment of the market.
However, there are also downsides to the combined Cunard/Seaboum fleets – especially: can two companies that have basically been losing money for years become profitable if joined together?
Most likely “no.”
Instead, the key to success here is the backing of the Carnival Corporation’s expertise and financial muscle in such areas as joint purchasing, for instance.
In addition, if the new company goes public, which it easily can do in Norway with the Carnival association, it will gain access to fresh capital for further growth.
On top of it all, this acquisition and merger happen in an upmarket where the cruise industry is enjoying tremendous financial success, which will further boost the new company’s opportunities.
Had Cunard been acquired by its other suitors, the chances for success would have been much less.
Fleet
In spite of the optimistic outlook, the new company will face a challenge integrating the present ships.
In the Cunard fleet, the flag ship, the QE2 is partially in the luxury market and partially in the contemporary market depending on cabin and dining room selection, according to company sources.
The Royal Viking Sun, however, is definitely a luxury ship, but the Vistafjord is aging at 25.
Then there are Sea Goddess I and II, definitely luxury vessels, close in size and ambiance to the three Seabourn vessels.
Thus, the new luxury company’s position in the marketplace is less “laser clear,” as Carnival executives like to put it, than the positions of other group companies.
The age of the fleet is also a detriment with considerable future investments required for upgrading and maintenance.
Also, according to Cruise Industry News’ definition of luxury market deployment, the new company will have seven ships (excluding the QE2) in the luxury market with 2,279 berths and an annual capacity of 52,800 passengers for 25 percent share of the luxury market.
That only makes the Cunard/Seabourn combination the largest operator in terms of passengers in the short term, as Renaissance Cruises will soon have a larger fleet; the two-ship Crystal Cruises has newbuilding plans as does Radisson Seven Seas and Silversea Cruises.
Although these companies lack the financial muscle of Carnival backing, they each enjoy a homogenous product and relatively new ships.
While the industry ponders these issues, the announced merger has not indicated whether Seabourn will move from San Francisco to Miami, or who will stay with the company – Larry Pimentel, president of Seabourn, or Paris Katsoufis, president of Cunard, or both, and who will be leaving.
