P&O Princess/Carnival Merger On Course

P&O Princess Cruises (POC) has formally recommended the merger with Carnival Corporation and shareholders will vote on it in the upcoming shareholders’ meeting in late March or early April.

The new combined company will be called Carnival and Carnival Chairman and CEO Micky Arison will have the same positions in the new company as will Carnival Vice Chairman and COO Howard Frank. Peter Ratcliffe becomes an executive director of the board, while POC’s chairman Lord Sterling will retire and CFO Nick Luff departs. Carnival CFO Gary Cahill becomes CFO of both companies. Ratcliffe is expected to continue as CEO of Princess Cruises.

The headquarters of the new combined company will be in Miami.  

POC removed what was considered the final hurdle to its merger with Carnival when it let a joint European venture with Royal Caribbean Cruises (RCC) expire earlier this month. While the expiration of that deal came at no cost to POC, it has already paid RCC a $62.5 million breakup fee for abandoning the original merger agreement between those two companies.

The dual listed company (DLC) merger proposal is being resubmitted to the EC, which is considered a formality, as the EC has previously cleared the merger.

The ownership ratio is 74 percent for Carnival and 26 percent for POC before the partial share offering (POC shareholders can trade for Carnival shares) and 79 percent for Carnival and 21 percent for POC if the partial share offering is fully exercised.

The new combined Carnival will have estimated revenues of approximately $8 billion and net income in the range of $1.6 billion for 2003. Total assets are estimated at more than $20 billion.

According to company documents, Carnival and POC carried approximately 4.7 million passengers in fiscal 2002.

The new company will have a fleet of 65 ships with 18 more on order for delivery through 2006.

Arison has said that he expects to complete the deal in the second quarter of 2003.

Executives at both companies expect the merger to allow for more efficient operations, which translates into cost-cutting. They have previously said that the merger should produce more than $100 million in cost savings in the first full year. The larger company will also have better access to capital for further expansion.

At press time, Carnival was trading for $24.90 on the New York Stock Exchange; POC’s ADRs were trading at $27.97, which translates into a per share price of approximately $6.99, while RCC was trading at $17.26.

The three cruise stocks have been on a downward slope since November, however, when Carnival topped $29, POC was at nearly $33 and RCC touched $22.

In 1999, Carnival traded as high as $50.

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