Princess, Royal Caribbean to Merge

P&O Princess Cruises PLC of London plans to merge with Royal Caribbean Ltd. in a $3 billion, leapfrogging Carnival Cruise Lines as the world's largest cruise ship operator.

Princess said Tuesday the combined company, tentatively named RCP Cruise Lines, would have 41 ships and 75,000 berths, topping Miami-based Carnival Cruise Lines.

The British company will own 50.7 percent of the new group, with Royal Caribbean taking 49.3 percent. The combined company would be worth about $6 billion and maintain headquarters in Miami.

Analysts lauded the deal. "I think investors will become more comfortable that the combined entities have significantly more staying power than either of the predecessor companies," said Scott Barry, a leisure travel industry for CS First Boston in New York.

Bob Simonson, an analyst with Chicago-based William Blair & Co., agreed, saying the companies would complement each other - Royal Caribbean is heavily oriented toward Caribbean travel while Princess offers routes in Europe, Australia and Alaska.

"It's a pretty good fit," Simonson said.

Investors were pleased as well, pushing shares of both companies up in trading Tuesday. Princess shares rose 51.75 pence, or 16 percent in trading on the London Stock Exchange, to 368.75 pence ($5.24). Shares of Royal Caribbean rose as much as 17 percent on the New York Stock Exchange before settling up $1.09, or 7 percent, to $16.10.

The companies said the merger should save $100 million within a year even as the new company plans to increase its capacity by more than a third to 105,000 berths by 2005. It has 14 ships on order.

Princess chief executive Peter Ratcliffe said no significant job cuts were expected. The merged company will have 40,000 employees.

Princess said savings would come from marketing efficiencies, improved purchasing and combined tour operations in Alaska.

Under terms of the deal, an existing Royal Caribbean share will be equivalent to up to 3.46 existing P&O Princess shares. The merger, subject to shareholder and regulatory approval, is to be completed in the second quarter of 2002.

Richard D. Fain, chairman and chief executive officer of Royal Caribbean, will take the same post with the new group. Ratcliffe will become managing director and chief operating officer.

Princess said 3 million passengers were carried by the two companies in 2000, and aggregate sales for the nine months to Sept. 30, 2001 were more than $5 billion.

The cruise line heavyweights developed the deal at a difficult time for the industry, which was already slumping before the Sept. 11 attacks made it lose millions of dollars more. Fears about traveling have kept many passengers home, and boosting security has been costly.

In Florida, two cruise lines already have filed for bankruptcy due to the impact of the attacks - American Classic Voyages Miami and Fort Lauderdale-based Renaissance Cruises.

Fain said the two groups had been discussing a possible alliance as long ago as 1991 but that the events of Sept. 11 made the move "even more valuable."

Princess split away from Peninsular and Oriental Steam Navigation Company in Oct. 2000 to become an independent company.

P&O traces its origins to the 1840s in Britain. In 1999, it acquired a majority stake in the German cruise line AIDA, and acquired full control of AIDA and Seetours the following year.

Royal Caribbean Cruise Line was founded in 1969 by three Norwegian shipping lines. It merged with Admiral Cruises in 1988 and changed its name to Royal Caribbean International in 1997.