Star Cruises has acquired 50.2 percent of Norwegian Cruise Line (NCL) and as a result, is offering NOK 35 for the outstanding NCL shares, the highest price paid by Star.

In what some cruise executives described as a ''brilliant move" Star outmaneuvered both NCL and Carnival Corporation, which had made a bid of NOK 30 per share to acquire NCL.

According to sources, NCL's majority shareholders, Kristian Siem, chairman; Geir Aune president and CEO; and Trygve Hegnar, board member; controlling some 30 percent of the shares - schemed with Star for the Malaysian-based company to acquire 20 percent, thus effectively blocking Carnival's bid.

But Star did not stop there and continued to buy NCL shares - apparently without the knowledge or consent of Siem, Aune and Hegnar, who now stand to make a lot less money at NOK 35 than what they may have envisioned. In addition, they have effectively lost control of NCL.

When the market realized there would be no bidding up of NCL shares, prices dropped as low as NOK 30.10, and institutional sellers were happy to unload to Star at NOK 35.

Star said it will become the first global cruise company with itineraries all over the world, and with 18 ships and more than 21,000 berths, Star will also be the third largest cruise company in world - sharing that rank with P&O/Princess Cruises.

''This is a significant milestone for Star Cruises as it will have geographic coverage in the Americas, Europe and Asia-Pacific," said Dato K T Lim, chairman of Star. "The 18-ship fleet will give us enormous flexibility in terms of deployment, marketing, purchasing and other efficiencies that will be generated throughout the fleet for both companies," he added.

According to Lim, Star and NCL will realize substantial synergies in revenue potential and cost savings through sharing and exchange of marketing, technical, purchasing and management expertise.

Star Cruises will also intensify its efforts to increase its shipbuilding program and consider newbuildings larger than the 112,000-ton Sagittarius­ class for delivery in 2004 and 2005 for the Asia-Pacific markets, Lim said.

The share price of NOK 35 plus the assumption of $800 million of debt puts Star's investment at approximately $1.8 billion, compared to the $1.7 billion estimate put on the Carnival offer.

The Star transaction puts per-berth evaluation of NCL at $144,000.


In a conference call to analysts on Friday, Dec. 17, Carnival Vice Chairman Howard Frank said that Star had the advantage over Carnival since Star could buy up shares in the market. Carnival meanwhile was restrained from buying more than the 1.8 percent it had already obtained pending clearance from U.S. regulators under the Hart Scott Rodino antitrust law.

Frank described Star's maneuvering as "a brilliant move" from their (Star's) standpoint. But he added that "we are not quite sure what they (Star) will achieve by this.

"We think NOK 35 is expensive and don't think they will achieve synergies on the operating side."

Frank also said that Carnival will sell its NCL shares to Star and will make a "little profit" after covering all of its expenses in conjunction with the offer.

Other Suitors

Last week, when rejecting Carnival's bid of NOK 30 as too low, NCL Chairman Siem said that NCL had been approached by other interested parties, but would only name Star among them. At the time Star issued a statement confirming that they had talked, but no more.

In addition, Premier Cruises bad approached NCL about a possible merger, but Siem said he did not believe it was the right combination.


Since making its offer public, Carnival said repeatedly it would not increase its offer of $30 per share and NCL said it would not meet with Carnival, but they met last week behind closed doors anyway, thus raising speculation that Carnival was considering raising its bid. All that Carnival and NCL would say was that they agreed to talk and that they agreed not to tell the rest of the world what they talked about...

Eventually, however, Carnival issued a statement wherein Chairman Micky Arison said: "We tendered for NCL at a share price we believed provided significant value to NCL shareholders as well as Carnival shareholders. Based on information available to us, prices in excess of NOK 30 would not create value for Carnival's shareholders. Consequently, we believe that pursuing this acquisition any further would not be in the best interest of our shareholders."

Until Friday, Dec. 17, Star also kept its intentions quiet. In fact, when Star announced on Thursday that it had increased its holdings from 20 to 39 percent, it said it did not intend to bid for the firm. Hegnar was quoted as saying that when he and Siem had a meeting with Star executives and they pledged not to buy more than 39 percent, Star had already made the decision to buy more shares.

Also on Friday, Siem was quoted as saying that Star had not at that point asked for a seat on the board, but that he would not be opposed to it. As it turned, Siem may now have to ask Star if he can remain on the board.

Fighting Back

When Carnival made its offer, NCL's reaction was not only to reject it, but to fight back.

In a press conference last week, Siem referred to Carnival as spreading "negative propaganda to the company's shareholders in Norway," and said he saw no reason that shareholders should accept the offer of NOK 30 per share. Siem said that the board of NCL had unanimously rejected the bid as inadequate. But he also said that NCL would look at "offers if they make sense," and that NCL could also stand alone and grow.

Siem forecasted pretax earnings for NCL for 1999 at $40 million (compared to $4.1 million for 1998). Cruise Industry News estimates net earnings for 1999 at about $28 million, compared to a loss of $2.6 million in 1998. For 2000, Siem predicted pretax earnings of $92 million on revenues of $692 million.

New Course

At NOK 35, or $1.9 billion, Star has gotten what seems like a very good deal: entry into the North American and European markets with an established company with a good brand name and substantial profit potential.

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