In a not-unexpected turnabout P&O Princess Cruises (POC) is now backing Carnival Corporation's bid to merge with POC as a dual listed company (DLC).

POC has terminated its agreement with Royal Caribbean Cruises (RCC) and paid the $62.5 million break-up fee to RCC. The planned Southern European joint venture between POC and RCC, which served as poison pill, will terminate on Jan. 1, 2003.

The deal with Carnival is expected to be consummated at an extraordinary general meeting of POC shareholders to be called on February 14, 2003.

"Combining Carnival and POC would create the leading company in the industry, with a wide portfolio of complimentary brands, including some of the best known and respected cruise brands in the world," said Peter Ratcliffe, CEO of POC.

Carnival will hold 74 to 79 percent of the new DLC. Carnival's Chairman and CEO Micky Arison will be CEO of the new company and Howard Frank, presently vice chairman and COO of Carnival, will be COO of the DLC.

Carnival will in effect acquire POC at a seemingly much more advantageous cost than if it had gone through with its original takeover bid.

Coincidentally, POC announced its decision on Oct. 25 - the same day that Carnival took delivery of the Carnival Conquest for its Carnival Cruise Lines brand.

RCC issued a brief statement confirming its agreement with POC had been terminated.


The DLC merger allows both firms to be run under a unified management, but maintain separate corporate entities, and have separate stock market listings in New York and London.

In the new DLC combination, one Carnival share is worth 3.3289 POC shares, equivalent to 0.3004 Carnival shares for each POC share. Under these tenns, Carnival shares will account for 74 percent of the merged company and POC 26 percent.

Up to 20 percent of the outstanding POC shares will be exchangeable for Carnival shares.

Carnival stated that it intends to invite POC representatives to join the Carnival board and believes there will be significant benefits in sharing the best practices of the two management teams across the combined enterprise.

Carnival expects significant synergies to benefit both shareholders and customers. Savings are expected to come from the sharing of the best practices to achieve efficiencies and in purchasing, marketing and from rationalizing support operations in locations served by both companies. Carnival's previous cost­ saving estimate was for at least $100 million annually.

Specifically, savings are expected to be found in the cost of sales and procurement, particularly in the areas of food and beverage, hotel supplies, concessions, excursions and port-of-call costs; from a reduction in duplicated costs from the combined support infrastructure of POC and Carnival's Alaska-based land operations; and from selling and general administrative costs, including savings from insurance, advertising, payroll and other administrative costs.

Carnival also stated that it does not expect that there will be significant employee redundancies arising from the combination.

The "new" Carnival Corporation will include 13 brands, 72 ships, and 111,317 berths in 2003, for a combined share of 48.7 percent of the North American capacity and 43.0 percent of the worldwide capacity, according to Cruise Industry News. RCC would remain the second largest cruise company with 32.0 percent of the North American market and 24.0 percent of the worldwide market. With two companies controlling more than 80 percent of the market, analysts are bullish on earnings, expecting pricing to rise, and the newbuilding pace to slow.