A major new cruise company is set to emerge following the announcement that an agreement has been signed between the Chandris Group and the Overseas Shipholding Group to form a joint venture. The new company, to be called Celebrity Cruise Lines, will be owned on a 51/49 percent basis by Chandris and OSG, and will initially own and operate six cruise ships marketed under the trade names of Celebrity Cruises and Fantasy Cruises.

Chandris will contribute six cruise ships to the venture and OSG will contribute $220 million in cash that will be used primarily to finance expansion. The deal is expected to be completed by the end of October. Celebrity Cruise Lines' assets will be in excess of $800 million.

New Giant

Celebrity Cruise Lines' assets will include an estimated "war chest" of some $300 million, including the $220 million invested by OSG and cash held by Chandris.

John Chandris, Chairman, said that he expected the new, enlarged company shortly to be able to take advantage of some interesting opportunities.

Michael Recanati, Senior Vice President and Treasurer of OSG, said that new company is looking both at acquisitions and newbuildings.

Al Wallack, Senior Vice President of Marketing and Passenger Services at Chandris, commented that OSG's investment would go into the cruise company and that it was not a bail out situation.

Wallack also noted that there were many ships available in the marketplace and some worthy companies in the deluxe and mass markets that would complement the Celebrity product.

Interpreting comments made by Chandris and OSG executives, Celebrity Cruise Lines can be expected to seek to acquire a deluxe product in the near term. This may be followed by an acquisition of ships or a company in the mass market. In addition, the company also seems intent to stay in the budget market

Newbuildings are also in the cards. Previous reports have indicated ships up to 70,000 tons, in the 1,600 to 2,000 passenger range.

If this scenario unfolds, Celebrity Cruise Lines will in a few years emerge as one of the major players in the industry represented in the deluxe, premium, mass and budget segments of the market.

Celebrity Cruise Lines' ships will consist of the new 1,374-passenger, 47,255-ton Zenith; the nearly new sister ship, the 1,354-passenger, 46,811-ton Horizon; and the 1,106-passenger, 30,440-ton Meridian in the Celebrity Cruises fleet; and the 619-passenger, 20,000-ton Amerikanis; the 922-passenger, 26,000-ton Britanis; and the 550-passenger, 19,000-ton Victoria in the Fantasy Cruises fleet.

Expansion plans are expected to be announced before January 1, according to Wallack.

Ship Values

As net assets are valued in "excess of $800 million" for the new company, it means that Chandris contributes an estimated $580 million after subtracting OSG's investment of $220 million.

This newsletter also estimates that Chandris long term debt for new ships and the rebuilding of the Meridian is in the neighborhood of $300 million to $350 million (without that figure being confirmed).

Chandris' contribution can further be broken down as follows: Individual ship values estimated at $500 million for Celebrity Cruises at $200 million each for the Zenith and the Horizon, and $100 million for Meridian; and $30 million for Fantasy Cruises at $10 million each for the Amerikanis, Britanis, and Victoria.

Thus, ship values total some $530 million which leaves $50 million for cash on band, good will, etc.

On the above basis, the $800 million evaluation of net assets seems rather conservative. In comparison to how several other companies estimate the market value of their ships, the Celebrity Cruises fleet should be worth more. The respective market positions enjoyed by Celebrity Cruises and Fantasy Cruises also seem conservatively valued, along with the company's human resources, operating systems, etc.

Also, while it recently has been popular to estimate the per-berth value of transactions, it is difficult to employ this measure for this transaction since the ships range so widely in age and deployment.

Celebrity Cruises

It was big step forward for Chandris, when the company announced its newbuilding program in 1988, and it took another year before the company in April of 1989 announced that it was launching a new cruise line.

Until 1988, Chandris had been busy establishing Fantasy Cruises as a sound value product, overcoming passengers' and travel agents' sometimes bitter memories of the "old" Chandris earlier in the decade.

Sources said at the time that Chandris faced a tremendous job creating the national recognition that would be required for a new cruise line, and questioned whether the company could deliver a premium product.

Chandris meanwhile went ahead and announced that its new cruise line would be called Celebrity Cruises and would be operated and co­ marketed by the Chandris organization alongside its existing cruise line, Fantasy Cruises.

Harry Haralambopoulos, Executive Director, said at the time that "Chandris has a clear understanding of the kind of environment the quality passenger enjoys and has translated that into two new vessels."

Meyer Werft was contracted to build the new Horizon and Zenith, while the Galileo underwent a bow-to-stern reconstruction program at Lloyd Werft Bremerhaven to emerge as the Meridian.

In a remarkable achievement, since 1990, when the Horizon and Meridian entered service, followed by the Zenith this past spring, Celebrity Cruises has established a reputation for a quality product and become an industry leader.


OSG is one of the world's largest bulk shipping companies with a fleet of some 65 vessels operating under U.S. and foreign registry. It is Listed on the New York Stock Exchange.

While analysts gave OSG a "stellar operating reputation" and said that the company had substantial liquidity, they also said that they expected OSG's earnings to be negatively impacted through 1993 by faltering tanker rates, reduced world demand for petroleum products, production cuts, and increased operating costs.

One research report estimated that OSG would not be able to post a profit in 1992 and recently reduced an earnings estimate for 1993 from $1.33 to $0.50 per share.

OSG reported net income of $55 million for 1991 on total revenues of $452.4 million, or $1.67 per share, compared to $55.8 million on total revenues of $429 million, or $1.63 per share in 1990.

Approximately 75 percent of the OSG's operating revenues came from carrying petroleum products in 1991.

It seems as if OSG has recently not been able to earn the sort of return on its capital that its owners and investors may want. Thus, Chandris and the cruise market may afford it a better opportunity.

At the end of the second quarter, ending June 30, 1992, OSG listed its cash holding at $114 million and total current assets at $165 million. Investments in marketable securities were reported to be $48 million; capital construction and restricted funds: $89 million; other assets: $124 million; and total assets: $1.6 billion.

Long term debt was $407 million and represented 34.3 percent of capitalization (long term debt and stockholders' equity).

Recanti told this newsletter that "we have $220 million, not all in cash, but in sufficient resources, and will contribute the full amount when the agreement is executed in October. He noted that all documents have been signed.

At press time OSG traded in the $14.50 range compared to a 12-month high/low of $21.25 and $13.75.

Recanti said that OSG has been looking for a cruise opportunity for the last four years. Last year, the company was close to reaching a deal with Kloster Cruise where it would have gone in with what amounted to a loan that could have been converted to ownership. Instead, that deal fell through when the "parties agreed to disagree."

"We think Chandris is a very interesting opportunity and we intend to be active shareholders," Recanti added.

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