LONDON -- Some travel agents thought it already was too large. P&O Princess Cruises said it made a proposal that was undeliverable. Royal Caribbean Cruises claimed its actions were a distraction.

But in the end, industry giant Carnival Corp. was victorious in the merger battle for P&O Princess, which terminated its long-standing agreement for a friendly merger with RCCL.

If Carnival's newly proposed deal with P&O Princess is accepted by the board and its shareholders next year, analysts say Carnival Corp. will have something new: global reach.

"P&O Princess is well diversified; it has worldwide coverage," said Tony Peisley, an independent cruise analyst in the U.K. "What Carnival gets is a foot in the door in some source markets it doesn't already have."

Joe Hovorka, an analyst for Raymond James in St. Petersburg, Fla., agreed, pointing out that markets where Carnival is strong -- such as with Costa Cruises in Italy and France -- complement P&O Princess strongholds in the U.K. and Australia.

And, he emphasized, Carnival is getting the Princess brand. "Arguably, it may be the strongest brand following the Carnival [Cruise Lines] brand."

At P&O Princess' urging, Carnival dropped plans for an outright acquisition of P&O Princess in favor of a dual-listed company arrangement that would allow P&O Princess to retain its shares and stock listing in the U.K.

Carnival would control about 74% of the dual-listed company's shares; P&O Princess would control about 26%.

The new proposal cannot be formally recommended by P&O Princess' board until January. But if the board accepts it, as expected, P&O Princess shareholders will vote on the Carnival deal on Feb. 14.

RCCL is no longer an option; it agreed to drop its merger agreement and accept a $62.5 million break-up fee from P&O Princess. The two also dropped their plan for a joint venture in Europe.

Now that the battle is over, analysts and industry executives believe that the cruise industry won't see too much change in pricing or consolidation.

"I don't think it will change fundamentally," Peisley said. "[Carnival] buys things and leaves them more or less be."

Bob Simonson, an analyst with Chicago-based William Blair and Co., said there is a chance that travel agent pay could be affected by consolidation.

But he added, "You need an effective distribution system. If [cruise lines] cut commissions, they might be cutting off their nose to spite their face."

Andrew Stuart, the senior vice president of sales and marketing for Norwegian Cruise Line -- which would be the industry's new No. 3 -- said the cruise market still is competitive.

"NCL has a strong position," he said. "We have a very defined strategic plan [and] ships that are different from other cruise lines."

The biggest impact on operations may be in Alaska, where Princess and Carnival's Holland America Line control much of the tonnage as well as the two major ground operations.

There may be opportunities in Alaska for the combined company to eliminate some overlap, and Carnival has said there likely will be a "reduction in duplicated costs from the combined support infrastructure of ... Alaskan land-based operations."

And, of course, a combination would give Carnival more economies of scale in purchasing, sales and administrative costs. Carnival said the combination would enable the company to save $100 million a year.

RCCL and Carnival have been vying for P&O Princess for nearly a year, but Carnival said its interest in a combination with Princess pre-dates the public takeover battle that began last year.

A Carnival spokesman said the November 2001 agreement between P&O Princess and RCCL forced Carnival to make a hostile bid.

"We either could sit back and let it happen, or hop in," the spokesman said. "It was the only choice we had."

Q&A with Micky Arison

Carnival Corp. is poised to add P&O Princess Cruises to its roster of brands early next year. Northstar Travel Media editorial director Alan Fredericks caught up with Micky Arison, the company's chairman and CEO, to talk about the combination.

TW:Carnival Corp. is getting so big that some agents are worried you may change your distribution strategy.

Arison: We don't manage distribution in a centralized way. Agents deal with our individual brands and we allow the brands to set their own policies of distribution and compensation. We're not going to centralize that process.

TW:Some travel agents in the West worry that Princess, based in L.A., will come under strong influence from your corporate office in Miami and lose its affinity with the Western trade.

Arison: That hasn't been the case with Holland America, based in Seattle, and it won't happen with Princess. We view individual brand management as critically important.

TW:So you won't be moving Princess headquarters to Miami?

Arison: We have no plans to move it to Florida.

TW:You'll be operating the two biggest competitors to Alaska. How will you rationalize that?

Arison: We have been operating brands that compete in various markets for a long time. Carnival has competed with Holland America in Alaska and the Caribbean but we don't try to manage that competition. What we will do is look at the infrastructure in Alaska to try to operate as efficiently as possible in terms of hotels, buses and rail.

TW:Some competing cruise lines worry that you will control the infrastructure in Alaska.

Arison: Alaska isn't a market that companies can't enter. Royal Caribbean hadn't been there in the past, and they were able to enter without problems.

TW:There is speculation that your overall market share at Carnival Corp. will allow you to drive up prices.

Arison: That has nothing to do with prices. American Classic Voyages was the only cruise line in the intra-Hawaii market ... they had a monopoly, and they went bankrupt.

We currently are the only company doing three- and four-day cruises out of Los Angeles with Carnival Ecstasy, and if we try to drive the price up too high, people make a left turn and go to the Mirage in Vegas. We are part of an overall vacation market, and we have to compete in that market.

TW:The P&O Princess alliance puts you in the international cruise market in a much bigger way. How do you see that?

Arison: We will have high awareness in many world travel markets. In the U.S., Carnival Cruise Lines is No. 1 in consumer awareness and Princess is No. 2; in the U.K., P&O is No. 1 and Cunard is No. 2. Aida Cruises is No. 1 in Germany, and Costa is No. 1 in Italy, Spain, France and in South America.

So we have a unique foundation and a great opportunity everywhere we operate around the globe.

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