Carnival Corporation has agreed to sell its Windstar Cruises brand to Ambassadors International. Windstar, which operates three sailing vessels, is a wholly owned subsidiary of Holland America Line , a unit of Carnival.

Ambassador is paying $100 million for the brand and the three vessels which have 608 berths combined with an estimated annual passenger capacity of29,500.

The payment will consist of $19 million in cash, assumption of $21 million in liabilities, and Carnival will provide mortgage financing for $60 million at 7 percent interest over 10 years.

Thus, Windstar, the brand, and the three vessels, are valued at approximately $164,473 per berth.

The 148-passenger Wind Star and Spirit were built for $24 million each and delivered in 1986 and 1988. The 312-passenger Wind Surf, the former Club Med 2, was built for approximately $100 million in 1990. The combined newbuilding cost is $148 million or $243,421 per berth.

Projections

In a conference call on Feb. 28, Ambassador Chairman, President and CEO Joe Ueberroth said that projections for the nine months of operations (after the deal is completed in early April), call for $61 million in revenue, including $9 million in onboard spending, from the Windstar addition, pre-tax income of $4.5 million and net income of $4.2 million, or $0.56 per share.

Ueberroth said that Windstar generated net income of $2.9 million (for Holland America) in 2006, up from a net loss of $550,000 in 2005.

He also noted that Windstar’s ticket prices were $100 to $300 below other leading ships in the luxury market, adding that the brand represents a tremendous value proposition if Ambassador can drive up the per diems.

Also in 2007, the Wind Star and Spirit will both undergo five-week drydocks at $5 million each. There are no drydocks scheduled for 2008.

Ueberroth said the life expectancy for the Windstar ships go beyond 10 years and is determined
by market demand. He noted that the riverboats of Majestic America Line, Ambassador’s riverboat company, have operated for decades.

Background

The first ship, the Wind Star, made her debut in October 1986, and launched seven-day service out of Martinique in December.

The second vessel, the Song, entered service in 1987, sailing from Tahiti. That ship was scuttled after a fire a couple of years ago. The Spirit entered service in 1988.

Windstar was founded by New York-based businessman Karl Andren, who also owned Circle Line and Day Line, and by the Norwegian shipping company Stolt Nielsen.

But launching a new concept and brand quickly burned its way through the operating capital and by May 1987, Holland America acquired a 50 percent interest. At the time, Nico Van der Vorm, chairman and CEO of Holland America, and Jean-Claude Potier, president of Windstar, said that ”this in no way represented a merger or integration.” But by September 1988, Holland America acquired the remaining 50 percent.

While no official amount was given in 1988 or 1987, sources suggested that Holland America first invested $12 million in Windstar. Potier said that the capital infusion would be used for a third and possibly a fourth ship.

Windstar had previously initiated a private placement for additional financing of $5 million which was never completed, according to Andren, who was then chairman of Windstar.

Carnival Strategy

Carnival Chairman and CEO Micky Arison said in a prepared statement that Carnival made the decision to exit from the niche cruise business some time ago and the sale of Windstar is part of that strategy. And last year, Carnival made the decision to cease operation of its Swan Hellenic brand.

Carnival retains Seabourn Cruise Line, however, and has even ordered two new ships for that brand. However, Seabourn is not attached to any one Carnival brand the way Windstar has been to Holland America or Cunard Line is to Princess Cruises.

Ambassadors

Ambassadors entered the cruise industry last year with its acquisition of Delta Queen Steamboat Company and American West Steamboat Company and merged them under one line, Majestic America Line, that now has six riverboats and a sightseeing vessel.

The acquisition of Windstar moves Ambassadors from American-flag to foreign-flag cruising with itineraries in the Caribbean and the Mediterranean.

V. Ships Leisure has been hired to manage the vessel operations pending the closing of the deal in April.

Earnings

Ambassadors has reported net income of $5.7 million, or $0.50 per share, on revenues of$146 million for the year ended Dec. 31, 2006, compared to net income of $3.1 million, or $0.30 per share, on revenues of$26.9 million for 2005.

2006 revenues were boosted by $68.3 million in cruise ticket revenue and $9 million in onboard and other revenue. The company did not own cruise vessels in 2005.

Operating income for 2006, however, was $1.4 million for a 1 percent operating margin. Net income was boosted by other income.

For the fourth quarter ended Dec. 31, 2006, Ambassadors reported a net loss of $1.8 million, or $0.16 per share, on revenues of $50.4 million, compared to a loss of $149,000, or $0.01 per share, on revenues of$4.8 million in 2005.

According to Ambassadors, 2006 cruise earnings were negatively impacted by a grounding, engine failure and norovirus incident to the tune of $6 million, for which the company is pursuing insurance claims.

Excluding the incidents, Ueberroth said Majestic America Line was on track to earn $9 million. He also said that the cruise operations exceeded expectations on most fronts, and exceeded revenue and occupancy targets.

Windstar, which is 90 percent booked for 2007, according to Ueberroth, will be positioned as a luxury market product along with Majestic America, but targeting different market segments.

The Mississippi Queen will undergo renovation in 2007, but will enter service before the fall foliage season, Ueberroth said. The vessel needs further renovation in order to deliver a luxury product, he added, noting that last year there were customer complaints about the food service. While Ambassadors owned the ship in 2006, it was operated by the previous owners, he pointed out.

During the fourth quarter, four river vessels, only one of which sailed for the full period, carried some 7,700 passengers for a load factor of 88.5 percent and average ticket price of $2,300 per person, according to CFO Brian Schaefgen. The riverboats are laid up for the winter.