Carnival to Buy Holland America for $625 Million : Deal Gives ‘Line for Masses’ Entry Into Luxury Cruises

After having been thwarted recently in a bid to diversify into the luxury end of the cruise business, Carnival Cruise Lines--styled as “the cruise line for the masses--said Friday that it now intends to buy Holland America Line’s Seattle-based travel and tourism companies for $625 million.

Carnival described the Holland America deal as a significant move to broaden its market beyond its present emphasis on discount-priced cruises. Holland America is in the luxury end of the industry.

Micky Arison, president of Carnival and son of the Miami-based company’s majority owner, Ted Arison, jointly announced the signing of a letter of intent with Nico van der Vorm, chairman of Holland America Line NV. The transaction includes Holland America’s cruise operations, Westours tour business, Westmark Hotels and Windstar Sail Cruises.

“We have invited Nico van der Vorm to join Carnival’s board of directors and are delighted he has accepted,” Arison said in the statement. He added that the Holland America companies will operate under their current names and management, with A. Kirk Lanterman continuing as president of the acquired companies, whose headquarters will remain in Seattle.

“With the consolidation taking place in our industry and the necessity to expand in order to be successful, this presents an attractive option for our company.” Van der Vorm said.

Last summer, for example, Princess Cruises of Los Angeles, which operates five “Love Boats” popularized by the long-running television series, agreed to buy another Los Angeles operator, Sitmar Cruises, for $210 million. Sitmar has four ships and another three under construction.

That merger, in which Sitmar will disappear, vaulted Princess from sixth or seventh largest in the industry in terms of passenger volume into a close race for second place behind industry leader Carnival.

Tim Gallagher, a Carnival spokesman in Miami, said payment will likely be in cash. He added that the deal is expected to close by Jan. 15, assuming no hitch in negotiating a definitive agreement and winning its approval by both companies’ directors and Holland America’s shareholders.

Carnival is building two new, 70,000-ton ships, each being fitted to carry 2,600 passengers and is about to start construction on a third. The company also contemplates building a series of smaller, more luxurious vessels to carry 700 passengers each in all-suite accommodations, Gallagher said.

In August, Carnival agreed to buy 70% of Royal Admiral Cruises Ltd. for $550 million cash. That deal fell through last month, however, when Anders Wilhelmsen & Co. exercised an option for first rights to buy out the other Royal Admiral partners.

Holland America operates four ships in the Caribbean and Alaska, representing about 4,500 berths. Westmark has a chain of 18 hotels in Alaska and western Canada, while Westours is the largest wholesale tour operator in those areas. Windstar Sail Cruises operates three passenger sailing ships in the South Pacific, Mediterranean and Caribbean.

Carnival operates seven cruise ships in the Bahamas, Caribbean and Mexico, each equipped with a casino and usually fully booked. Last month it opened a casino in the Bahamas and next month will open the first 255 rooms in an adjoinning luxury resort that eventually will have 872 rooms.

The cruise line is 80% owned by billionaire Ted Arison, 64, son of an Israeli shipowner and one of America’s 20 wealthiest people. He and Meshulam Riklis founded Carnival in 1972, with Arison buying Riklis’ stake two years later. Arison took Carnival public in 1986.

It reported net earnings of $97.7 million on revenue of $420 million that year and earnings of $152.8 million on revenue of $564.1 million last year. Analyst Harvey Katz of Salomon Bros. estimated that earnings will top $190 million this year, with revenue climbing to $616.8 million.