Carnival Corporation is expected to gross nearly $500 million with a gain of nearly $200 million on its initial investment when the sale of its 25 percent interest in Airtours is completed. The sale was expected to close on June 1. According to a prepared statement from Carnival, proceeds will be used for general corporate purposes.

Carnival also recently raised $600 million from a convertible offering in April and approximately $300 million in a Eurobond deal in March.

While some of the money was used to replace bridge financing for Costa Crociere, Carnival remains with more than $1 billion in cash.

Speculations

With $1 billion in cash, the industry grapevine is ripe with rumors.

In a prepared statement, Carnival Chairman Micky Arison said: "We believe the European cruise market has significant growth potential and will continue to explore ways to increase our presence in this important cruise region."

With pricing pressure in its core North American market, Carnival and other lines have been looking to Europe for growth. Meanwhile, Hapag-Lloyd denied reports that its tour and cruise interests were being acquired by Carnival.

Carnival has previously sought to acquire both Norwegian Cruise Line and Princess Cruises.

Market Reactions

Ever since Carnival bought Airtours' interest in Costa, it was believed that the company was seeking to find an exit from the British tour operator, especially since Airtours' results have fluctuated and had a negative impact on Carnival's earnings in the first two quarters. Without Airtours, Carnival's results will have somewhat less seasonal volatility and be more predictable as all companies in the group are now 100 percent held by Carnival.

Airtours is expected to continue to produce passengers for Carnival both in Europe and through its American subsidiary, Travel Services International. Thus, Carnival will continue to receive the same benefits without the capital investment.

Carnival said it has refocused its European strategy with emphasis primarily on its Costa and Cunard Line brands, both of which it said have a strong European presence and have thus diminished the strategic reason for the Airtours investment.

Carnival also said it plans to build upon its position in Europe through an aggressive building program that includes new ships for Costa and the QM2 for Cunard.

Also, a number of large Carnival shareholders were believed to have not been impressed with Airtours' track record.

Several analysts have put Carnival on a Strong Buy recommendation and forecast 12- to 15-month share prices from the high $30s to the low $40s.

But so far there has been little upward movement in the stock based on the acquisition rumors. In light of the continued pressure on pricing in North America and increased competition in Europe, investors may feel more comfortable if Carnival kept its cash for a while or used it for organic growth, that is, developing its already successful brands, Carnival Cruise Lines and Holland America Line.

At press time, Carnival Corporation shares traded for $28.13, compared to a 52-week high/low of $34.94 $18.31.