Carnival Corporation raised its offer for P&O Princess (POC) slightly last week, from 500 pence to 515 pence per share, valuing POC at approximately $5.0 billion. The offer is conditional upon regulatory clearance.

The offer is also structured so that Carnival will avoid having to pay the costs associated with the termination of the joint venture between POC and Royal Caribbean Cruises (RCC) by mailing its formal offer to shareholders after the date when POC is entitled to exit the joint venture without penalties. Carnival estimates that it can mail its offer in December and that POC can exit the joint venture in January 2003.

Carnival is now offering 0.2864 Carnival shares for each POC share or a partial cash alternative of 250 pence. Its original offer was for 250 pence in cash and 0.1380 of its shares. At the time, that offer was worth 500 pence per share.

Analysts' reactions were mixed. Many had expected a higher cash offer from Carnival.

It is expected that POC's board will also reject Carnival's latest offer.

POC rejected Carnival's previous offer on the grounds that it was "financially inferior to the RCC combination and less deliverable," according to POC.

Meanwhile, Carnival Chairman Micky Arison is taking his case to POC shareholders, hoping he may convince them to vote to adjourn the emergency general meeting (EGM) scheduled for Feb. 14 where shareholders are scheduled to vote on the merger with RCC. Or, if the EGM is not adjourned, that they will vote down the RCC merger.

Carnival has also changed its tone in the battle for POC. Recently, Carnival has made more personal attacks on RCC's management.

According to Arison, "Since RCC has historically under-performed, is there any reason to believe they will improve in the future?"

Stated Carnival: "Under the RCC proposal, Richard Fain (chairman and CEO) would hold the same position in the new RCC/POC combination. Is it reasonable or credible to assume that, after 13 years of delivering inferior returns to shareholders, Fain would improve his performance?."

Carnival has also challenged the brand strategy of RCC, suggesting that it is unclear, that the brands overlap, and that one brand in the new group may even be eliminated.

In a separate and unrelated conference call to analysts, Fain described the exchange as "controversial and rancorous," but refrained from further comments.

At this point, both the RCC/POC merger and Carnival's proposal to acquire POC are being reviewed by the regulatory and antitrust authorities in the U.S. and the U.K. The U.K. authorities are expected to make their decision sometime after May 20. It is unknown when the Federal Trade Commission (FTC) will make its decision. The RCC/POC merger has already been approved by the German authorities.

Meanwhile, the FTC is conducting an exhaustive study of the industry, including interviews with executives at other cruise lines, travel agents, and other industry experts.

Carnival has repeatedly stated that it believes there is no material difference between the regulatory positions of its offer or that of RCC.

Industry sources differ, however. Many expect that the Carnival acquisition will face a larger regulatory hurdle.

Following Carnival's latest offer, the respective shares showed little movement on The New York Stock Exchange: Carnival's shares fell $0.49 to $26.56; POC's ADS fell $0.55 to $22.05, and RCC fell $0.51 to $18.19.