Carnival Corporation's offer to buy Norwegian Cruise Line (NCL) for about $900 million, or NOK 30 per share, was rejected by NCL's board as "inadequate" at press time. And Carnival executives said they would not raise their offer.

Analysts interviewed by Cruise Industry News said that a more realistic pricing of NCL would be in the range from NOK 45 to NOK 60. Over the past 18 months, NCL shares reached a high of NOK 48.40.

One source said NCL investors have carried all the risk for the past four to five years and now as the company seems to be turned around and is poised for earnings, they are not prepared to sell at what they consider to be a discount.

Carnival's offer also includes assumption of NCL's debt, which amounts to $800 million, bringing the total transaction to $1.7 billion. At that price, the per-berth evaluation of NCL's current fleet would be approximately $129,000 per berth, including good will and market share. NCL has seven ships with approximately 10,500 berths, its subsidiary Orient Lines has two ships with 1,850 berths, and its Australian Joint-venture, Norwegian Capricorn Line, has one ship with 850 berths.

By comparison, Carnival and its partners paid $143,802 per berth for Cunard Line in 1998 and Royal Caribbean International (RCI) paid $161,200 per berth for Celebrity Cruises in 1997. But NCL has a stronger market position and brand name than either Cunard or Celebrity had, and is profitable - if only marginally.


The first scenario is that Carnival sweetens its bid, although both Carnival Corp. chairman and CEO Micky Arison and vice chairman Howard Frank have been quoted as saying they will not raise their bid above NOK 30. At press time, however, Carnival executives were in Norway meeting with majority shareholders in NCL.

The second scenario raises another question: Can RCI and P&O afford to let Carnival buy NCL?

Insiders confirmed that P&O has previously bid NOK 32 per share for NCL.

Both RO and P&O have officially stated they are not interested in NCL.

However, if Carnival acquires NCL, Carnival gets another contemporary market product - the fastest growing and most profitable market segment - that it can position between Carnival Cruise Lines and Holland America Line.

Carnival also gets a Norwegian-identity product, which it can position vis-a-vis the partially Norwegian identity of RCI, thus distracting the market and stealing some market share from RCI.

Furthermore, through NCL, Carnival would finally get into Bermuda.

In addition, Carnival would get a foothold in another market niche with Orient Lines - culturally oriented cruises - and in a new market (where it wants to be) in the Pacific (read Far East) through Norwegian Capricorn Lines.

Seen as a growth company by Wall Street, Carnival also needs NCL to continue to grow revenues and earnings.


NCL could be equally attractive to P&O.

NCL could be P&O's North American contemporary brand while Princess can reinforce its premium market position.

In addition, NCL would give Princess entry to the short-cruise market.

Orient Lines could co-exist with P&O's Swan Hellenic division, which offers educational and soft-exploration type of cruises.

And down-under P&O would defend the market share of P&O Holidays by acquiring its only competitor, Norwegian Capricorn Lines, and gain an opportunity to expand into the Far East.


RCI's main motivation would seem to be defensive. The company would seemingly need to defend its market position and image vis-a-vis its largest competitor, the Carnival family of cruise companies.

NCL would also give RCI additional ships to return to the Pacific and Far East, accelerate its entry into the European markets, and enter a new market niche through Orient Lines.

High-Stakes Game

There are a host of various benefits that the main industry players must presently be considering whether they were prepared or whether their hands will be forced by Carnival's offer.

At a pricing of NOK 30 per share, or $1.7 billion, including debt, for the entire company, NCL could also be attractive to others, including newcomers. After all, The Walt Disney Company spent in excess of one billion to launch two ships. NCL brings 10 ships and an established, profitable operation to the table for only double that amount based on the present offer.

In another scenario, an acquisition of NCL by a stronger cruise company would serve to protect the industry in case of an economic downturn. A weaker company would then be forced to discount and could force a downward trends on pricing.

Carnival's Offer

According to Carnival, its offer of NOK 30 per share represents a 32 percent premium over NCL's per­ share closing price on Nov. 30, 1999, and an approximate 40 percent premium over NCL's 30-day average closing price.

At press time, NCL reached a high of $16 on the New York Stock Exchange, while Carnival traded at $48.

(NCL is trading as American Depository Receipts on the New York Stock Exchange where each ADR is equal to four ordinary shares traded on the Oslo Stock Exchange. An ADR evaluation of $16 is equal to approximately $4.00 per share, which in tum translates into approximately NOK 32 (based on an exchange rate of approximately NOK 8.)

As of Aug. 31, 1999 Lazard Freres & CO. projected a 12-month price target of $18 for NCL's ADRs (NOK 36 per share).

For the nine-month period ended Sept. 30, 1999, NCL reported net income of $25.2 million on revenues of $651.8 million, compared to net income of $9.5 million on revenues of $575.4 million in the same period in 1998.

In a prepared statement, Carnival Corp. chairman and CEO Micky Arison said that the acquisition was not expected to be dilutive to Carnival's earnings per share in 2000 and was expected to become accretive in 2001.

Arisen also underlined that Carnival's approach has been to maintain the identity of its various brands and to allow them to operate autonomously under their own managements.

The present offer expires on December 22, 1999 at 4 p.m. Oslo time.

Carnival also tried to take over NCL in 1995 after NCL's parent company failed to make a scheduled bond payment. The deal fell through when Carnival and NCL failed to come to terms.

Earlier this year, Carnival also held unsuccessful talks to acquire P&O.