P&O Princess accepts revised $5.4 billion offer from Carnival

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Posted 1:17PM on Friday, October 25, 2002

LONDON - P&O Princess Cruises PLC accepted a sweetened $5.4 billion takeover offer from Miami's Carnival Corp., signaling that months of jockeying by the world's top three cruise companies might be nearing an end. P&O Princess spent much of the past year fighting off Carnival's approaches after agreeing to a "merger of equals" with rival U.S. cruise company, Royal Caribbean Cruises Ltd., also based in Miami. But P&O Princess chief executive Peter Ratcliffe said his company's board had decided Carnival's latest offer was "financially superior" and that it was withdrawing support for the Royal Caribbean deal. "Following our constructive negotiations over the past two weeks, we are pleased that Carnival has put forward a committed DLC (dual-listed company) offer that would allow all of our shareholders to retain an ongoing interest in a combination of Carnival and P&O Princess," Ratcliffe said. The deal will create a powerful new company listed in both London and New York - Carnival is the world's biggest cruise operator and P&O Princess the third. Royal Caribbean is ranked No. 2. "This is important to us given the growth potential of the cruise industry and the exciting prospects for a combined Carnival and P&O Princess group," Ratcliffe said. The Carnival offer values P&O Princess at 3.5 billion pounds, up from its earlier bid of $5 billion. Carnival made the offer on the condition that P&O Princess withdraw its recommendation of the Royal Caribbean deal within 48 hours and that P&O Princess recommend the Carnival bid to shareholders by Jan. 10. Richard Fain, Royal Caribbean chairman and chief executive, said the decision by P&O Princess to agree with the conditions was regrettable. P&O Princess first revealed in November 2001 that it had agreed to a deal with Royal Caribbean. "We remain today as convinced as ever that the pairing of our two companies would be a great partnership and a great business," he said. "Ultimately, it is the shareholders of P&O Princess who must decide what is best for their company." Princess must pay Royal Caribbean a $62.5 million penalty as the price for breaking off their merger plans. Ratcliffe said the combined group was likely to be called Carnival in both the United States and Britain but that the P&O Princess name was unlikely disappear completely. He said he didn't expect the takeover to result in the loss of a significant number of jobs. "There are seven million people cruising in the U.S., and I believe there's still a lot of growth there. But what's more exciting is that in the rest of the world, people are only starting to discover cruising," he said. "The industry is growing and I imagine there will many opportunities for staff, so I don't think redundancies is going to be a significant story." P&O Princess employs around 20,000 people worldwide and sails under the brands P&O Cruises, Swan Hellenic and Ocean Village. Under the proposed terms of the takeover, Princess shareholders would receive one Carnival share for every 3.3289 Princess shares they hold. Shares in P&O Princess were down 1.7 percent at $7 on the London Stock Exchange. Shares of Carnival rose 22 cents to $25.88 while shares of Royal Caribbean fell 4.4 percent, or 86 cents a share, to $18.69 in morning trading on the New York Stock Exchange. P&O Princess reported Thursday that its third-quarter profit rose more than 7 percent, helped by cost cuts after last year's Sept. 11 terrorist attacks. The cruise company said earnings before taxes came to $184.2 million, up from $171.5 million a year earlier. P&O Princess representatives will join the Carnival board, but Ratcliffe said no decision had been made on what role he would take in a combined group, if any, and declined to comment on his own preferences.