At press time, the battle for P&O Princess Cruises (POC) was continuing, with Carnival Corporation trying to vie POC away from its announced merger with Royal Caribbean Cruises (RCC).

So far, POC has rejected all the advances from Carnival and the tone of the communications from both companies has become sharper.

POC has scheduled an Extraordinary General Meeting (EGM) on February 14, when the shareholders will vote on the merger with RCC, which will require 75 percent of the votes to be approved.

Meanwhile, POC has set a January 18 deadline for Carnival to make what POC calls a "superior offer" to be considered and recommended for or against at the EGM.

Carnival on the other hand has stated that it finds it astonishing that POC does not already regard its offer as "superior and deliverable" and has also asked for clarification regarding the break-up costs of the POC and RCC joint cruise venture targeting Southern Europe.

If Carnival succeeds in breaking off the merger and proceeds with an acquisition of POC, the break-up fee is $62.5 million from the merger agreement plus an estimated $484 million from the joint venture, according to Carnival, which called it an unprecedented poison pill. Carnival also asked why a joint venture was needed, given that both companies were proposing to merge. At press time, the company said it would continue to request a meeting with the POC board to clarify the break-up costs.

On Jan. 10, POC issued a statement to shareholders that seemed to open the door to Carnival a little by repeating that Carnival had until January 18 to make a superior offer and that the merger between POC and RCC could be terminated unilaterally in January 2003 at no cost as long as there had been no change in the control of POC before the termination date.

But POC went on to reiterate its support for the merger with RCC.


POC said on January 10 that it rejected the Carnival offer on the following grounds:

• Even if Carnival made an unconditional offer on the financial terms it proposed it would not be as favorable to POC as the proposed merger with RCC.

• A takeover by Carnival would raise different anti­ trust issues and was less likely to be approved than its merger with RCC.

• While Carnival has asked POC to postpone the EGM in favor of its takeover proposal, Carnival has no obligation to fulfill its proposal. Instead, RCC has entered into a binding contract.

• Carnival may also be indifferent as to whether it buys POC or breaks the POC/RCC merger, which would let Carnival retain its position as the largest cruise company in the world.

The agreement with RCC must be honored according to POC. The letter said it was unrealistic to adjourn the February EGM and later choose between the RCC merger or the Carnival offer.

If POC shareholders vote against the merger at the EGM, RCC has the right to terminate the agreement.

And in the event RCC walks away, Carnival's pre-conditional proposal would be the only proposal left on the table, according to POC, which said Carnival then may or may not pursue its proposal. POC said that was a risk its shareholders should not take.

Different Points of View

While Carnival has given the impression that it has been in talks with POC over the years for a possible takeover, POC said that since it became publicly listed in October 2000, the only contact from Carnival came on September 24, 2001, when POC's share price was at an all-time low of 180 p.

This brief telephone inquiry was not followed up, POC said. It was only after the announcement of the proposed merger with RCC that Carnival made its takeover proposal on December 13, 2001.

In a conference call, Dec. 17, 2001, Carnival Chairman Micky Arison said that Carnival's offer was superior, calling it a clean, simple acquisition with a 44 percent premium over RCC's proposal.

Arison also said he believes both proposals face the same regulatory issues. "The only issue we see is regulatory clearance and we believe we are both in the same position," Arison said. His view was that POC should allow both transactions to go ahead and let the shareholders decide.

On a sharper note, Arison said that this was not about size. It was not about putting two companies together and suddenly getting the economic scales of a third company, he said, noting that Holland America Line (HAL) has margins similar to Carnival Cruise Lines. But HAL is operated independently and is much smaller than either POC or RCC. Arison criticized the "other sides for believing that bigger size will solve all their problems."

Arison also said that the only loser he saw is POC shareholders if the POC and RCC deal goes through.

The agreement between POC and RCC also prohibits either party from soliciting an alternative proposal. However, subject to giving 10 business days' prior notice to the other party, either party is allowed to discuss any proposal it believes is superior to the merger, taking into account both value and deliverability, POC said, adding that it believed Carnival's offer fell short in both areas.

However, with the consent of RCC, POC did extend the period between posting the EGM and holding the EGM to approve the merger from the standard three weeks to seven weeks.

POC said that if Carnival submits an offer before January 18, 2002, the board will have sufficient time to consider it and hold discussions with Carnival as may be appropriate, and then make a recommendation to POC shareholders.


If Carnival acquires POC, the combination would create a bigger number-one company in the cruise industry, while RCC would be a relatively smaller number two.

If RCC and POC merge, the result would be two big cruise companies, the new RCC/POC and Carnival.

If the regulatory authorities fail to approve either deal, Carnival retains its position as the largest cruise company while RCC and POC sail on as number two and three.