Battles for Cruise Lines

The battle over P&O Princess Cruises (POC) is another step in the industry’s history of consolidation and mergers.

Carnival Corporation’s $5.3 billion bid, including debt of $1.4 billion, gives an approximate valuation of POC at $244,418 per berth.

By comparison, POC is building new ships at a cost of approximately $190,000 to $205,000 per berth.

So the valuation seems to be in Carnival’s favor. The downside for Carnival is that the valuation also includes older and smaller ships. The upside is that it includes good will, brand recognition in several markets, and the company (POC) itself.

Two years ago, Carnival and Star Cruises battled it out over Norwegian Cruise Line (NCL), with Star emerging as the eventual winner, acquiring NCL for approximately $144,500 per berth.

And, back in 1988, Carnival made agreements with two out of the three partners that owned Royal Caribbean Cruises (RCC) to acquire the company for $550 million plus debt, or $168, 790 per berth.

But the third partner, the Anders Wilhelsmen Company of Norway, refused to sell and instead exercised its first right to buy out the partners, and beat Carnival to the deal. When RCC was acquiring Celebrity Cruises in 1997, Carnival made a higher counter bid, but lost.

RCC explained why Celebrity accepted its offer by saying that “there is better chemistry between RCC and Celebrity.”

Carnival’s bid was dependent on the completion of due diligence, although it also held out the possibility of raising its bid further. But Celebrity’s owners, who barely acknowledged Carnival’s offer, were said to have recalled Carnival’s bid to take over Premier Cruise Lines, which was withdrawn after due diligence.

It was also speculated that the agreement between RCC and Celebrity allowed RCC to match other offers and that there was a break-up fee, which a source close to the deal denied. The following is a summary of most of the mergers and acquisitions that have taken place or been contemplated in the cruise industry:

• 2000: Carnival acquired full ownership of Costa Crociere giving Costa an approximate per-berth valuation of $113,366.

After its shares fell, POC called off a deal to acquire Festival Cruises in a transaction estimated to value Festival at $190,000 per berth.

POC completed its takeover of Aida and SeeTours in a deal estimated to carry a per-berth value of $93,023.

• 1998: Carnival bought Cunard Line from the Kvaerner Group, which wanted to get out of the shipowner business, at $144,802 per berth.

NCL acquired Orient Lines for approximately $100,000 per berth.

• 1997: RCC acquired Celebrity Cruises, whose owners saw little opportunity to continue as an independent company, for $161,191 per berth. RCC described the acquisition as an “equal joint venture.”

Carnival and AirTours acquired Costa Crociere jointly for $41,208 per berth. Carnival pulled out of a joint venture with Hyundai Merchant Marine to develop Far Eastern markets. Carnival and Hyundai had joined forces in 1996.

• 1995: Holland America Line (Carnival Corporation) offered to buy Royal Cruise Line (RCL) for $95,875 per berth, but the offer was rejected. RCL was later shut down.

• 1993: American Classic Voyages acquired American Hawaii Cruises in a deal equivalent to $18,796 per berth.

• Carnival acquired a 43 percent interest in Epirotiki Lines, which one analyst at the time described as a “very smart move.” Carnival exited Epirotiki in 1995.

• 1992: Overseas Shipholding Group (OSG) acquired a 49 percent stake in Celebrity Cruises at an estimated valuation of $75,000 per berth.

Carnival acquired its first 25 percent of Seabourn Cruise Line in a deal valuing the company at approximately $245,000 per berth.

The Lelakis Group acquired full ownership of Regency Cruises in a transaction that suggested a per-berth valuation of approximately $20,000.

The French companies Chargeurs and Accor invested in Costa, suggesting a per-berth evaluation of $85,000.

Carnival pulled out of a plan with Club Med to develop mass-market cruising in Europe.

• 1991: OSG pulled out of a deal to invest $225 million in NCL. Renaissance Cruises was sold for an undisclosed amount, but was believed to carry a $200 million debt.

• 1990: Carnival withdrew a bid to acquire Premier Cruise Lines for an estimated $75,000 per berth.

• 1989: Carnival acquired Holland America Line (HAL) for $135,625 per berth.

• Kloster Cruise acquired RCL for $148,612 per berth.

• 1988: HAL acquired Home Line, which wanted to exit the business, for $128,205 per berth.

HAL also completed its acquisition of Windstar Cruises for an estimated $180,000 per berth.

(When HAL first acquired 50 percent of Windstar in 1987, management of both companies said that it in “no way represented a merger or integration of the two companies.”)

Princess Cruises acquired Sitmar for $71,138 per berth. The Sitmar brand was withdrawn as the ships were renamed and merged into the Princess fleet.

EefJohn acquired Bermuda Star Line for $9,349 per berth.

Carnival failed in an attempt to take over RCC.

• 1984: Cunard Line acquired Norwegian American Cruises for $55,000 per berth.

• 1983: Kloster acquired Royal Viking Line for $114,000 per berth.

The valuations have fluctuated but have generally reflected the age of the ships and the health of the company being acquired.

Once the present battle has been settled and the smoke clears, the grapevine will undoubtedly focus on what it considers to be the next transaction(s).

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