NEW YORK -- Royal Caribbean Cruises Ltd. and P&O Princess
Cruises, the second- and third-largest cruise operators,
respectively, announced a $5.9 billion merger agreement that would
create the world's largest cruise line.
London-based P&O Princess has a market value of
approximately $3.11 billion, while Miami's Royal Caribbean is
valued at $2.89 billion.
Under the deal -- scheduled to close in the second quarter of
2002 pending regulatory approval -- P&O Princess would hold
50.7% of the merged company.
The merged company does not have an official name, but has been
referred to under the code name "RCP Cruise Lines." The firm will
be led by Richard Fain, currently Royal Caribbean's chairman and
chief executive officer, who will take the same post with the new
company.
Peter Ratcliffe, now president and CEO of P&O Princess, will
become managing director and chief operating officer of the
combined group. Nick Luff, currently P&O Princess' chief
financial officer, will assume that role with the new company.
Richard Glasier, currently Royal Caribbean's CFO, will "assume a
new operational role" in the combined group.
The combined company, to be headquartered in Miami, will have a
fleet of 41 ships with about 75,000 berths, plus 14 ships (totaling
30,000 berths) on order through 2005. Royal Caribbean and P&O
Princess carried 3 million passengers in 2000.
The new company will be "a single unified business" with
headquarters in Miami and "a significant corporate office in
London," according to officials. The companies also control P&O
Cruises and Swan Hellenic Cruises in the U.K., Aida Cruises and
A'Rosa in Germany, and P&O Cruises in Australia. In addition,
Royal Caribbean and P&O Princess operate five wilderness lodges
in Alaska, and three private islands in the Caribbean.
As part of the agreement, Royal Caribbean and P&O Princess
also established a joint venture aimed at vacationers in Italy,
France and Spain. Owned equally by Royal Caribbean and P&O
Princess, the unit will commence operations in 2003 with four new
ships -- two Radiance-class vessels from Royal Caribbean and two
Grand-class ships from P&O Princess. The vessels are on order
and slated for delivery in 2003 and 2004.
Fain said the Celebrity Cruises, Princess Cruises and Royal
Caribbean International brands will operate separately, and each
will take on a new group name. He made it clear the huge new
company is aiming to overtake Carnival Corp. as the world's most
profitable cruise operator.
"We have an opportunity to create an industry leader going
forward," Fain said during a conference call with analysts
following the deal's announcement.
Indeed, while the new company will be the industry's largest in
terms of berth capacity, its nearly $6 billion market value still
trails industry leader Carnival Corp., whose market capitalization
totals about $15 billion.
The combined companies expect the merger to generate cost
savings of $100 million a year, through more efficient purchasing,
marketing and administrative operations, combining Alaska
operations and "rationalizing offices in various locations."
Still, the new entity "will maintain a substantial presence" in
Los Angeles, which is currently Princess' headquarters, and
Seattle, home to the line's Alaska operations," according to a
joint statement.
Fain said the agreement "Brings near-term cost savings and
increased efficiencies that will help us respond to any short-term
challenges while building a stronger group. Our industry has
sustainable long-term growth characteristics despite the impact of
recent events on short-term trading."
"A merger was the best strategic move to increase value for
shareholders," said Ratcliffe. "The brands are very complementary.
We have a company that has the potential to become the most
successful cruise company in the world."
Ratcliffe said the companies had discussed a merger as far back
as 1991, but the talks had intensified and included a meeting,
ironically, on Sept. 11.
However, the stunning merger agreement had many high-level
cruise sellers scratching their heads. "I'm a little confused,"
said Jeff Kivet, owner of Cruise Value Center in East Brunswick,
N.J. "It was unforeseen and there is no precedent. What advantage
does in give to either company? I'm concerned about how it will
affect our operations. The battle lines are being drawn."
Kivet also wondered which company's officials would establish
policies for the new company's operations, because the two
companies have very different corporate cultures, he said.
"I'm curious to know who's the horse and who's the boss. What
about the sales forces? Every day we're waking up with news we
haven't seen before."