Carnival Seeks Shareholder Support in Bid for Princess

As Carnival Corp. sought shareholder support Monday for its $6-billion hostile bid for P&O; Princess Cruises, analysts said investors’ early reaction suggests there could be a bidding war among the giants of the cruise ship industry.

P&O; Princess management, which rejected Carnival’s offer on Sunday, reaffirmed plans announced last month to combine with Royal Caribbean Cruise Lines Ltd. P&O; Princess said Monday that it would hold a special shareholders meeting in January to vote on its friendly merger with Royal.

Although investors’ pushed up P&O; Princess’ stock Monday and Carnival’s dropped a tad, shares of Royal fell 12%, suggesting that investors were in no hurry to endorse the merger with Royal. Analysts said Royal might have to sweeten its deal with P&O; or face the possibility that it could become a very distant second-place player in a tough market for the cruise and travel industry.

“The market is saying it believes there’s something more in the cards for Princess,” said Jim Winchester, analyst for Lazard Freres & Co.

“We haven’t seen the last offer from Royal at this point,” said Paul Keung, analyst for CIBC World Markets in New York. “Winning the Princess deal was huge for them, the biggest thing ever....They don’t want to let this one get away.”

Miami-based Royal, the world’s second-largest cruise ship operator, declined to comment Monday. P&O; Princess of London, the industry’s No. 3 and parent of Princess Cruises’ North American line based in Santa Clarita, also said little beyond reaffirming its commitment to combine with Royal to create the world’s largest cruise company and overtake market leader Carnival.

P&O; Princess and Royal structured their deal as a merger of equals, with Princess shareholders receiving 50.7% of the equity of the new company. Princess and Royal said their combination would produce annual savings of $100 million, which analysts said looked particularly attractive at a time when the industry is in the midst of a downturn in leisure travel made more severe after the Sept. 11 attacks.

But Carnival executives, who have other plans, were busy Monday trying to sell its offer to analysts and the public. Micky Arison, chief executive officer, said Monday that Carnival had approached Princess several times over the last two years, most recently on Sept. 24, but its efforts had been ignored.

Carnival officials said their cash and stock offer for P&O; Princess was more attractive than the Royal Caribbean deal because it came with less risk and a bigger premium to Princess shareholders. Carnival, also based in Miami, offered to pay 27% above Princess’ closing stock price Friday in London.

Carnival officials had hoped its offer would force P&O; Princess to defer a special shareholders’ meeting next month. Carnival said there was still time to win over Princess shareholders.

P&O; Princess has said a merger with Carnival would deliver less cost reductions and provide fewer long-term benefits to shareholders than a combination with Royal. Carnival’s stock, which has lost 13% this year, dropped 47 cents to $26.83. Royal Caribbean slid $1.91 to $14.42 on Monday, and has declined 45% this year. Princess shares rose $1.19 to $22.23, all on the New York Stock Exchange.