In the end there were three winners: Star won; the Malaysian-based cruise company acquired Norwegian Cruise Line (NCL) and now has a foothold in the North American and Western cruise markets.

Carnival Corporation won too; it ended up with 40 percent of NCL and thus will pay a lot less than if it had acquired 100 percent.

And NCL’s shareholders won – they received NOK 35 per share.

The way it played out was that Carnival suddenly withdrew is offer of NOK 40 – which superseded Star’s NOK 35 offer – and joined forces with Star. Thus, Carnival agreed to acquire 40 percent of Star’s subsidiary Arrasas, which was established to acquire NCL. Star retains 60 percent ownership of Arrasas. Carnival agreed to pay an amount equal to 40 percent of what Star is paying for NCL.

The only losers were the investors who gambled on Carnival’s NOK 40 offer and who may have set their sights even higher.

So instead of battling it out over NCL and instead of being cut-throat competitors in the North American market, Star and Carnival are now partners.

But if there was one lesson learned in the battle over NCL, it was that the future course of business partners is sometimes unpredictable.

Global Alliance

Both Colin Au, CEO of Star, and Micky Arison, chairman of Carnival, said they were delighted with the partnership – after fighting over NCL – and said they looked forward to starting a long-term global alliance.

The new alliance will have a total fleet of 67 ships capable of carrying 5.2 million cruise passengers in 2000 – or 54 percent of the estimated world markets!

Broken down by source markets, the Carnival family will have a 3.3 million passenger capacity in North America in 2000, compared to an estimated total passenger traffic of seven million. That translates into 47 percent of all North American passengers.

In Europe, Carnival companies will have an estimated passenger capacity of 380,000 or 30 percent of the European market.  

And in the Far East there is only one major international player, Star.

Thus, overall the new alliance will carry more than half of all the cruise passengers in the world.

Growing Dominance

Carnival Corporation has 14 more ships on order or on option; Star has four ships on order, and NCL has signed a letter of intent to build at least two more ships.

If all these orders come to fruition, the Star­ Carnival alliance will bring 20 more ships into service over the next five-year period. They will boost the companies’ passenger capacity by at least another 2.5 million passengers.

Stars Au has previously said that his plans for NCL include an aggressive newbuilding program, introducing one new mega-ship every year. Meanwhile, the smaller NCL ships would be transferred to the Far East.

There were rumors that Star could convert its newbuildings at Meyer Werft into NCL ships in order to jump-start CL’s expansion program.

So far no further details have been provided on the size of the new ships and whether Star intends to continue with the Norwegian Sky-class of ships.

Strategic Significance

The alliance between Carnival and Star gives Star a partner facilitating its entry into North America and possibly into Europe as well.

Carnival has the local resources and expertise to streamline CL’s operations, while Star has the ambition (and resources) to build new ships for NCL.

By partnering with Star, Carnival has also avoided getting a strong and potentially unpredictable competitor in Miami.

In addition, Star may give Carnival the entry into the Far East that the company has been looking for since its aborted joint venture with Hyundai. In due course, older Carnival ships could also be transferred to new markets in Asia.

The alliance may also give Star enough international backing to fend off the expected $5 billion ticket that Evergreen is rumored to be prepared to pay to get into the cruise business.

There are also talks of Star and Carnival stock swaps or purchase of the remaining 60 percent of NCL that could expand or terminate the alliance.

New Board

While Colin Veitch assumed his position as the new president and CEO of NCL on Wednesday, Feb. 9, a new board was also named.

The six-member board is comprised of Norwegian Ole Lund as chairman of the board, Star Cruises’ chairman Dato Lim, Star’s CEO Au, British lawyer Peter Brooks, Norwegian lawyer Rolf Johan Ringdal, and Veitch.

The composition appears to give complete control to Star and it is unclear why Lund, Brooks and Ringdal are on the board. No further clarification as to their cruise and/or American business insight was provided.

But glaringly absent from the board is Carnival. After committing an estimated $450 million for 40 percent of NCL, plus debt, Carnival has no voting members on the board, only two non-voting observers.

It is unlike Carnival to take such a “back-seat” position.