Carnival Goes Hostile to Win P&O Princess

The world's biggest cruise operator, Carnival Corp., went hostile on Monday with its rejected $4.6 billion bid for P&O Princess, in an effort to scotch P&O Princess' merger with a rival.

Carnival wants to break up an agreed $7 billion merger between P&O Princess Cruises Plc and Royal Caribbean Cruises Ltd. that would oust Carnival from the number one spot.

The battle of the cruiselines comes as a sharp downturn in luxury tourism, exacerbated by September's attacks in the United States, pushes operators to cut costs by seeking alliances.

P&O Princess rejected Carnival's approach on Sunday, even though the 456 pence per share bid values the UK company at around $1 billion more than the Royal Caribbean merger, which puts a price of around 350 pence on P&O Princess shares.

QE2 owner Carnival said it would by-pass P&O Princess' management and ask shareholders to decide.

``The only thing we can do now is go direct to shareholders,'' Carnival Vice Chairman Howard Frank told reporters.

But investors in the UK-based cruise line said they shared P&O Princess' concerns that Carnival would struggle to get its bid past regulators, particularly in the United States.

Shares in P&O Princess, whose fleet includes TV's ``Love Boat,'' climbed as much as 11 percent then eased back on concerns any deal with Carnival faced major obstacles. At 12:10 p.m. GMT the stock was up 5.7 percent at 380-1/2 pence.

Royal Caribbean shares in Oslo were down 13 percent at 127.5 crowns.

Carnival's cash and stock offer comes ahead of an expected P&O Princess shareholder vote on the Caribbean deal next month. Its offer of 200 pence and 0.1361 Carnival shares for each P&O Princess share is a 27 percent premium on P&O Princess' closing price of 360p on Friday.

In the unusually structured merger between P&O Princess and Royal Caribbean, no shares or cash would change hands, and the companies would retain their separate stock market listings.


P&O Princess shareholders said they were in no hurry to accept the Carnival bid. Some doubted regulators would allow the two firms to merge -- they would control 47 percent of the U.S. market -- while others were hoping for a better price.

``We're underwhelmed by Carnival's offer. It could take up to a year before Carnival gets the necessary regulatory clearance,'' said David Lis at Morley Fund Management, which owns under one percent of P&O Princess.

Tim Rees, fund manager at Clerical Medical, said analysts had mentioned that Carnival could raise its bid to up to 500 pence for each P&O Princess shares.

Clerical Medical owns P&O Princess shares, and Rees said he felt shareholders in the British cruise operator should hold onto their stakes until the situation developed further.

Carnival Vice Chairman Howard Frank declined to say if Carnival would raise its bid. He called on P&O Princess to halt a planned vote by its shareholders on the Royal Caribbean deal.


P&O Princess said Royal Caribbean's bid was more attractive as it offered greater value to investors and faced less regulatory risk in the U.S. and Europe.

On completion, Royal Caribbean shareholders would have ''economic ownership'' of 49.3 percent of the combined entity, with P&O Princess investors holding the rest.

However, Carnival felt both deals shared the same regulatory risks, and the company added it would be willing to discuss any issues with relevant European and U.S. regulatory bodies.

``Our legal advisors have told us...the timing should be virtually identical in both transactions,'' Carnival Chief Executive Micky Arison told analysts.

Any tie-up would represent another sea change for an industry that thrived through most of the 1990s but fell out of favor over the past two years on worries about overly ambitious fleet expansion. Weaker players have fallen prey to bankruptcy.

A merger of Royal Caribbean and P&O Princess would create a 41-vessel fleet with 75,000 berths, or 25 percent more than Carnival's roughly 60,000. It promises savings of $100 million.

In the past, Carnival has waged bidding wars with Royal Caribbean for takeover targets like Celebrity Cruises. Last year it fought Malaysia's Star Cruises for Norway's NCL, the world's fourth-largest group, before teaming up with Star to buy it.

Under the Carnival proposal, P&O Princess said its shareholders would end up with only 14 percent of the combined entity, and it would be difficult for U.K. investors to hold on to their stock as Carnival is only listed in New York.

Carnival said it was willing to list its stock in London and discuss an alternative deal structure, including a dual listing company.

If P&O Princess shareholders do opt for Carnival's offer, they would likely owe Royal Caribbean a hefty break-up fee.

Under the companies' November agreement, $62.5 million will be payable if the transaction does not proceed and $200 million if a southern Europe joint venture hits the rocks.