Apollo adds Regent line to portfolio

The most rampant rumor in the cruise industry was finally put to rest last week when Carlson Cos. confirmed plans to sell its luxury cruise brand, Regent Seven Seas, to a private equity firm, Apollo Management.

The acquisition will be Apollo's third in the cruise sector this year, following the purchase of Oceania Cruises last March and its recent agreement to acquire 50% and management control of NCL Corp. from Malaysia-based Star Cruises.

The parties would not divulge what Apollo paid for Regent and its three midsize ships, but inside sources put the value of the deal at about $1 billion.

With the three brands, Apollo will have invested about $2 billion in the cruise industry and positioned itself as a force in a segment that has historically been dominated by two major players, Carnival Corp. and Royal Caribbean Cruises Ltd. That club was also recently joined by a fast-growing Italian cruise company, MSC Cruises. 

As for Apollo, there is no indication that the company has any plans to stop growing its cruise holdings.

"Our appetite is not sated," said Adam Aron, a senior operating partner with Apollo and a former cruise industry executive who is widely considered the architect of Apollo's cruise acquisitions. "If there is another attractive investment in the cruise industry, we will look at it."

Under the latest deal, which is expected to close in the first quarter of 2008, Regent and Oceania will operate as separate, competing brands under the umbrella of the newly formed Prestige Cruise Holdings. Prestige, in turn, will be controlled by Apollo and headed by current Oceania CEO Frank Del Rio, who was named chairman and CEO of the holding company.

Del Rio will serve as CEO of both brands in his new position and will no longer have day-to-day responsibilities at Oceania. 

Regent will remain an independent brand under its current president, Mark Conroy, and will continue to operate from its Fort Lauderdale offices. Oceania will maintain its Miami headquarters and be headed by Bob Binder, its current president. Binder and Conroy will both report to Del Rio.

In an interview, Del Rio said he would be involved in strategic planning and consulting for both brands.

"I'm only in charge of making sure each brand optimizes its potential," Del Rio said.

Apollo chose Del Rio to head Prestige after working with him for most of the last year. Del Rio is the second-largest shareholder of Prestige.

"He has proven to be a sensational executive," Aron said. "He founded Oceania and built it from scratch. We have a tremendous degree of confidence in him."  

NCL to be kept separate

NCL Corp. will remain separate from Prestige because NCL will be co-owned with Star Cruises and will have a different shareholder base, said Steve Martinez, an Apollo partner. Martinez also said that because Prestige was expected to go public down the road, it would be packaged as an entity with two brands in the upscale and luxury categories.

Aron added that Regent and Oceania were similarly sized companies and that their product was sold at significantly higher price points than NCL's product.

No matter where the companies fall within Apollo, the investment firm has solidified its position, with brands in the contemporary, upper premium and luxury cruise sectors.

"All three lines are going to be run separately, and all three lines will be vigorous competitors in each of their segments," Aron said. "We've got a stake in each major segment of the cruise industry." 

One industry insider, speaking anonymously, said Apollo had established itself as the fourth major cruise player, joining Carnival Corp., Royal Caribbean Cruises Ltd. and MSC Cruises.

"Having well-capitalized, rational competitors is always better than the alternative," the source said. 

According to Conroy, Apollo has licensed the Regent brand name from Carlson. The two companies will work together to mutually develop the brand, Carlson in the hotel sector and Prestige in cruises. Conroy also said that Carlson's travel companies would continue to be important customers for Regent Seven Seas.

The line's three ships -- the 700-passenger Seven Seas Voyager and Seven Seas Mariner and the 490-passenger Seven Seas Navigator -- are currently owned by Regent in a joint venture with Monaco-based Vlasov Group. As part of the acquisition, the ships will be wholly owned by Prestige.

Regent recently extended its contract to operate the 330-passenger Paul Gauguin through January 2010, and Conroy said Regent would also continue to charter the Explorer II for 35 days a year for Antarctic cruises.

Del Rio said Regent would grow under Prestige at a pace yet to be determined. The luxury line, like Oceania, was capacity-constrained, he said.

"Oceania has taken steps to alleviate that with two orders, and Regent will do so shortly," he said.  

Del Rio ordered two new ships from Italian shipbuilder Fincantieri shortly after Apollo acquired the three-ship line.

Aron stressed that Apollo would make investments in each of its brands. At NCL, he said, there would be a significant upgrade in the dining program. 

Growing the brands is necessary since Apollo, which has said it does not plan to sell the companies, is expected eventually to take them public. 

Other investments?

Aron joined Apollo in September 2006 with the charge to look for investment possibilities in the travel industry.

"Clearly we had a good year in 2007, fulfilling the mandate to invest in the cruise industry," Aron said. "We are also going to take a look at other investments in the travel industry."

Apollo was interested in the cruise industry as far back as 1994, Aron said, and it came very close to making a significant investment in NCL in the mid-1990s. But for various reasons, "the stars aligned" this year.

Aron gave Martinez credit for making the investments even as the economy wobbled and the credit markets began to tighten last summer.

"He made NCL happen and Regent happen in a tough environment for deal-making," Aron said.

Martinez said Apollo intentionally chose to pursue less debt and leverage than was typical in a private equity transaction in order to seal the deals.

He said that Regent had other suitors, but that Carlson recognized that Apollo would grow Regent as it has Oceania.

"They were choosing who was the best force to carry the brand and the company into the next generation," Martinez said. 

Apollo's three investments indicate its confidence in the cruise sector, said Aron.

"This industry is buoyed by the demographics of the baby boomer generation," said Aron. "The dramatic surge in the number of people in the U.S. in their 50s and 60s bodes quite well for the world's cruise industry."   

To contact reporter Johanna Jainchill, send e-mail to [email protected].