By acquiring Holland America Line, Carnival Cruise Lines is realizing its project "Tiffany" - making its entry into the upscale cruise market. Carnival becomes the world's largest cruise operator after agreeing to buy the travel and tourism interests of Holland America Line for $625 million.

Less than a month after its bid to acquire Royal Admiral fell through, Carnival has reached an agreement with the Dutch company to acquire its cruise operations, including both Holland America Line and Windstar Sail Cruises, and the company's tour and hotel operations in Alaska.

Carnival and Holland America Line reportedly have the best ratio of operating profits per berth in the industry.

Sources said that negotiations had been underway since last January and that Carnival eventually paid twice as much as it had initially offered.

Expensive

Carnival is paying around $880 per HAL share compared to the share price of approximately $380 at which HAL was quoted before trading was suspended last week. Carnival's shares did not move noticeably on the American Stock Exchange.

While the acquisition gives Carnival its long sought after entry into upscale market segments, it also appears to be giving the line a debt burden and a marketing challenge as the HAL ships and Windstar are said to be operating at significantly lower load factors than Carnival.

At the end of its third quarter (ending August 31, 1988), Carnival had $348 million in cash and long term debts of only $76 million.

In addition to paying $625 for the HAL, Carnival also assumes the company's long-term liabilities amounting to approximately $229 million (1987) and two ships on order for a total price of $540 million.

But Carnival executives obviously believe the deal is worth it. The acquisition gives Carnival a major entry in Alaska and a broader market in the Caribbean into upscale segments as well as into different demographic groups. Its sailing regions will also be expanded.

HAL is also said to have been working on private beach resorts in the Caribbean seeking to develop a cruise and tour package similar to its Alaskan concept.

Surprise Move

The acquisition took many in the industry by surprise. HAL was not seen as a typical takeover candidate, although discussions with Carnival had been going on for nearly a year. But it was also known that Carnival recently had engaged in similar discussions with P & O.

HAL was building its own cruise and travel empire in Alaska and had recently acquired a fourth ship, completed its acquisition of Windstar Sail Cruises, placed an order for two newbuildings, and was building a presence in the Caribbean.

But although the company has an impressive five year record of profits, the newbuildings would have added a considerable debt burden, and the bid price of nearly three times the market price must have been hard to resist.

HAL, although publicly traded in the Netherlands, is controlled by the Van der Vorm family, who negotiated the deal with Carnival, and it is unlikely that there will be any opposition form other shareholders.

Continuation

According to Nico van der Vorm, Chairman of HAL, the line will continue to function in its present structure and will be in a strong position to explore other investment opportunities.

Micky Arison, President of Carnival, said that Holland America would continue to operate under its current name and management with no merging of operations planned. Arison also said that Kirk Lanterman will continue as President headquartered in Seattle, Washington.

Changes

Industry observers, however, said that with the radically different style of operations and marketing at the two companies, it was highly unlikely that much time would pass before the new owners would be implementing far-reaching changes, especially to bring earnings up to Carnival levels.

The need to generate profits will also become more evident as the once cash-laden Carnival has spent its cash reserve and must also pay for new ships and expanded marketing efforts to generate more passengers for a larger fleet.

Pause

The acquisition of HAL may also signal a pause in the rapid growth of Carnival Cruise Lines. Insiders expect that the company will now be resting on its oars for some time while consolidating its position.

Largest

Carnival operates seven ships sailing on three-, four- and seven-day cruises to the Bahamas, Caribbean and Mexican Riviera and has three ships on order.

HAL operates four ships in the Caribbean and Alaska and has two ships on order. The line also owns Windstar Sail Cruises which has three ships sailing in the Caribbean, Mediterranean and the Pacific.

The present 14-ship fleet will have about 13,450 berths. By 1991, the Carnival-HAL-Windstar combination will have 19 ships with nearly 23,000 berths.

Nico van der Vorm will be serving on Carnival's board of directors.

The transaction is subject to the signing of the definitive agreements, expiration of the Hart-Scott­ Rodino waiting period, approval of both companies' board of directors, approval of the shareholders of HAL's parent company and other customary closing conditions. The closing is expected to take place no later than January 15.