Carnival Corp. appears to have the upper hand in the battle for
P&O Princess Cruises, which could be good news for travel
Carnival, a $13.5 billion company with six brands, made a richer
offer for P&O Princess Cruises Plc valued at about $5.4 billion
than the one made by Royal Caribbean Cruises Ltd.
The U.S. Federal Trade Commission’s recent decision to allow the
offer removed the main obstacle to the once-hostile deal.
But the FTC ruling on Oct. 4 also cleared the friendly $3.7
billion merger proposed for P&O Princess and Royal Caribbean, a
two-brand company valued at $2.9 billion.
“Princess has effectively come out and said they are willing to
entertain discussions with Carnival, which is a bit of a
milestone,” said Jim Winchester, an analyst with Lazard Freres
& Co. in New York. “Carnival clearly has deeper pockets,
greater financial resources and great flexibility on how the
transaction is ultimately structured. To me, that’s pretty
compelling right now.”
Another analyst, Peter McMullin, senior managing director of
Ryan, Beck & Co. in Boca Raton, Fla., agreed.
“I would think the odds favor Carnival with a bigger balance
sheet and better offer, although there are some hurdles to go
through,” McMullin said.
Some observers fear that further cruise consolidation would mean
fewer choices and higher prices for agents and their clients, but
the FTC ruling said neither plan would harm consumers or inhibit
“After either transaction, there still will be two large cruise
competitors and a substantial fringe that will compete with the
merged entity and could constrain any unilateral attempt by the
merged firm to increase price or reduce capacity,” the FTC
Winchester is skeptical that there will be any negative effects
on consumers or agents.
“It’s ultimately in the best interest of the agent community to
have a couple of players that are financially strong and doing
well, rather than having multiple players that are beating each
other over the head on a pricing basis,” he said.
Winchester also noted that bigger companies look for new cost
efficiencies instead of ways to cut out the main distribution
system, at least during the first several years of combined
“The agent is still very, very critical to the distribution
process,” he said. “Consolidation shifts the focus of big suppliers
away from distribution to operations and execution and where they
can combine synergies and economies of scale.”
The dueling deals now are in the hands of P&O Princess
shareholders, who will hold a special meeting to make their choice.
The earliest a meeting can be scheduled is Nov. 1; the Royal
Caribbean-P&O Princess merger plan is scheduled to expire Nov.
Other signs that Carnival might be the leading bidder include
the confidence of Chairman Micky Arison, the fact that shareholders
last sided with Carnival and the board’s public acknowledgement
that Carnival’s bid is superior.
“We are very confident that if it goes back to the shareholders,
we will own P&O Princess,” Arison said in August.
His confidence might be based in part on the Feb. 14 decision by
P&O Princess shareholders to give consideration to Carnival’s
The P&O Princess board has steadfastly supported the RCCL
plan over the last 11 months, refusing many times to meet with
Carnival executives. Now, however, the board is setting up
negotiations with Carnival and even described its offer as
“feasible and financially more attractive.”
Still, the board officially endorses the RCCL proposal, which
has been described as a “merger of equals” that would increase the
company’s value over the long term.
If No. 1 Carnival ends up with No. 3 Princess, it appears likely
that Princess will continue operating more or less as it does
“Carnival gives their brands a lot of autonomy,” Winchester
said. “They like to have strong chief executives at their brands
who really run their own shows and bring personality to the brand.
What would Holland America Line be without Kirk Lanterman?”
Arison has said he believes the corporate structure is there to
help brands grow and prosper. He builds stylish new ships for the
brands, helps sharpen their focus and promotes them through a
combined marketing entity called World’s Leading Cruise Lines. The
Carnival Corp. brands are Carnival Cruise Lines, Costa Cruises,
Cunard Line, Holland America Line, Seabourn Cruises and Windstar
With No. 2 RCCL, it is less clear how Princess would operate or
be positioned. RCCL bested Carnival to acquire Celebrity Cruises in
But the distinction between the two brands became blurred. Royal
Caribbean International is positioned as a mass-market/premium line
while Celebrity is a more upscale premium. The two lines sometimes
charge almost the same fares, even though Celebrity should command
a higher per-diem.
“Celebrity wasn’t that big a step away from the Royal Caribbean
International brand anyway,” Winchester said. “I’m not sure there
was a big distinction made to establish one identity for
Celebrity.” Princess, however, already has a strong identity.
“Princess is a premium brand that has gotten a premium price,”
Winchester said. “Princess has historically driven profitability
not by pinching pennies in its cost structure. It’s been done
really appropriately by promoting the brands to the customer and
getting some respect from the customer in return.”