Patience, persuasiveness led to RCCL's $1B deal for Silversea

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Silversea chairman Manfredi Lefebvre d'Ovidio (left) was initially focused exclusively on securing a minority investor. He later considered selling a majority stake in Silversea after discussions with RCCL's Richard Fain (right).
Silversea chairman Manfredi Lefebvre d'Ovidio (left) was initially focused exclusively on securing a minority investor. He later considered selling a majority stake in Silversea after discussions with RCCL's Richard Fain (right).

The winding journey that led to the deal for Royal Caribbean Cruises Ltd. (RCCL) to acquire a majority stake in Silversea Cruises for $1 billion was complicated and delicate, but both lines believe it will lead to a successful marriage.

The key ingredients to the courtship were patience, persuasiveness on the part of RCCL chairman and CEO Richard Fain, common viewpoints on several key values and, finally, acceptance by Silversea chairman Manfredi Lefebvre d'Ovidio that he would have to give up majority ownership of his family-owned company.

In an interview, Fain and Lefebvre discussed how the deal came together, despite Lefebvre's legendary aversion to ceding control of the company his father founded 24 years ago.

The process started midway through 2017, when RCCL was in a near-euphoric period of positive financial results. Silversea was doing well, too, and Lefebvre was sounding out various parties to take a minority stake in his company. As a matter of course, Lefebvre spoke about the opportunity to Fain, who he knew through various CLIA panels and duties.

"It started about a year ago when he was looking for a minority investor and, frankly, had no interest in talking about anything else," Fain said.

Mark Conroy, now Silversea's managing director for the Americas, worked for years at rival Regent Seven Seas Cruises when it was owned by the Carlson Cos. He said the two companies held on-and-off talks about combining but could never come to terms.

When Silversea was run by his father, until 2001, Lefebvre was in charge of ship operations. After his father died, Lefebvre became chairman. One of his father's dying wishes was for the line to have 12 ships, a goal Lefebvre speaks of frequently. Silversea is currently well on its way to that goal, with five luxury ships, four expedition vessels and two luxury ships on order, the Silver Moon due in 2020 and the Silver Dawn in 2021.

But financing further growth would likely be a strain on the privately held Silversea, which according to RCCL CFO Jason Liberty has about $500 million of debt. And the expedition market is poised to explode with new competitors in the next few years.

"Part of what made this timing possible is Silversea has gone through this amazing growth, not only in size but in reputation and market presence," Fain said. "They had reached a terrific scale, and to take it to the next level really required something fundamentally bigger."

Fain said that Lefebvre's initial reluctance to consider selling a majority stake was probably a good thing.

"I think it's actually helpful to the longer-term relationship," Fain said. "We just started dialoguing about what the advantages might be. It was only in the last three or four months that we seriously contemplated the idea of our taking a majority stake."

For Lefebvre, selling control was a huge leap. But as time went by, he began to come around to the idea.

"By talking with Royal, I gradually understood that the growth potential for the partnership with Royal was really the goal," he said, adding that an RCCL investment alone would not have achieved what he really wants for Silversea, which is "growing the company together, which is the real opportunity."

Fain also said the two leaders were "simpatico" on certain values, such as preserving the environment, high standards of quality and especially the value of people to the success of a business.

And Lefebvre liked that RCCL already had a successful 50-50 partnership with Germany's TUI Group in TUI Cruises.

By taking the deal, Lefebvre gets the benefit of future growth of his one-third stake plus a possible bonus of RCCL stock currently valued at more than $53 million, contingent on hitting financial targets in 2019 and 2020.

He also remains in charge as executive chairman of Silversea, which will be a standalone brand.

Silversea president Roberto Martinoli will also be retained.

The closing is expected to be completed later in the year.

What RCCL stands to gain

For RCCL, the benefit is in filling out a brand stable that has long lacked a true luxury line. It operates contemporary Royal Caribbean International and the premium Celebrity Cruises, and in 2007 it founded upper-premium Azamara Club Cruises. But competitors Carnival Corp. and Norwegian Cruise Line Holdings own small-ship lines Seabourn and Regent Seven Seas Cruises, respectively, which operate in the same luxury space Silversea does.

RCCL also gets a big boost into the expedition segment. It already has a small presence with Celebrity Xpedition, but that is limited to the Galapagos, while Silversea Expeditions ships roam the globe.

Rod McLeod, a former executive vice president of sales at Royal Caribbean and an industry consultant, said RCCL may have gotten a bargain.

"Without seeing Silversea's underlying numbers and financial performance, it is impossible to comment on the price tag," he said. "However, acquiring control of Silversea's fleet for about the cost of one brand-new RCCL megaship sounds like a pretty good deal to me."

The heads of several travel agency networks also voiced enthusiasm for the deal, including Michelle Fee, CEO of Cruise Planners, who said she was excited for both brands when she heard about the deal.

"I look forward to seeing what Royal Caribbean's creative and innovative thinkers come up with next, now that they are playing in the premier ultraluxury space with Silversea," Fee said.

Alex Sharpe, CEO of Signature Travel Network, said RCCL will benefit from Silversea's higher per diems, while Silversea will gain from the streamlining and discipline RCCL can bring to Silversea's sprawling international sales organization.

RCCL also gets some "incredible talent," Sharpe said. "Roberto Martinoli is extremely well thought of, [chief marketing officer] Barbara Muckerman is, I believe, one of the very best in that space, and Mark Conroy could sell ice to the Eskimos.

"All of these brands are important to our success; it will be lots of fun working with them and seeing how things evolve."

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