P&O; Princess Rejects Offer From Carnival

Setting up what could become a hostile takeover battle, P&O; Princess Cruises on Sunday rejected an unsolicited $4.6-billion offer from industry leader Carnival Cruise Lines Inc.

The bid appeared to be an attempt by Miami-based Carnival to thwart the pending merger of P&O; and Royal Caribbean Cruises Ltd., which would create the world’s largest cruise company.

P&O; is the parent of Princess Cruises, its North American line based in Santa Clarita.

In a statement released Sunday, Carnival Chairman Micky Arison said the rejected bid would be directly communicated to Princess shareholders, because the proposal “is in their best interests.” The company has scheduled a conference call with analysts today.

But P&O; officials said that’s precisely what they would get from a marriage with Royal Caribbean, a union that would put 37% of the cruise berths worldwide into one company’s hands and would be a formidable competitor to Carnival.

A merger also promises annual savings of $100 million at a time when the industry is in the midst of a severe downturn in leisure travel.

“Through our combination with Royal Caribbean, our shareholders will participate in the significant benefits of creating a world-leading competitor and rival Carnival,” Princess CEO Peter Ratcliffe said in a statement.

Last month, third-largest cruise line P&O; and No. 2 Royal Caribbean agreed to combine in an unusually structured deal in which no shares or cash would change hands and the companies would retain separate stock market listings.

Royal Caribbean shareholders would have “economic ownership” of 49.3% of the combined entity, with P&O; Princess investors holding the rest.

On Friday, Royal Caribbean closed at $16.33 on the New York Stock Exchange.

Carnival’s offer, which was sent in a letter to P&O; late last week, came about three weeks ahead of an expected P&O; shareholder vote on the Royal Caribbean deal.

Carnival officials said their proposal to Princess was more attractive than the Royal Caribbean deal because it came with less risk and a bigger premium to Princess shareholders. Carnival offered to pay 27% above Princess’ closing stock price Friday in London. Carnival shares closed Friday at $27.30 on the NYSE.

Carnival officials also pointed out the lopsided debt loads of the two cruise lines; Royal Caribbean carries $4.4 billion, while Princess debt load is $1.4 billion.

“Despite this, the Royal Caribbean proposal does not compensate P&O; Princess’ shareholders for the extra financial risk they would bear,” Arison said. He added that the most senior management positions in the combined company would be given to Royal Caribbean.

Still, Princess officials said the bid did not offer shareholder value and was subject to greater regulatory risk in Europe and the U.S. than the Royal Caribbean deal.

One of the advantages to the merger with Royal Caribbean is coverage; Royal’s strong routes in the Caribbean would complement Princess’ routes in Europe, Australia and Alaska. In addition, the average age of its fleet of 41 ships would be 6 years, making it the most modern cruise line fleet.

“Our response to Carnival is based on two clear criteria: value for our shareholders and deliverability,” Ratcliffe said in the statement. “Their proposal falls short on both counts.”

Carnival said its bid was “pre conditional,” meaning it would only go ahead if P&O; shareholders did not vote on the Royal Caribbean deal and Carnival’s bid got regulatory pre-approval.

In the past, Carnival has waged bidding wars with Royal Caribbean for takeover targets such as Celebrity Cruises.