Effjohn Buys Bermuda Star Line

Effjohn International, the parent company of Commodore Cruise Line, is acquiring the cruise business of Bermuda Star Line in a deal said to be worth more than $20 million.

At press time it was expected that the deal would be consumated by mid-May and sources expected the three BSL vessels to be merged into Commodore's fleet.

Effjohn International, which was formed at the start of this year by Swedish Johnson Line and the Finland Steamship Company (Effoa), is one of the world's largest operators of passenger ships, with 14 cruise ferries in the Baltic and the English Channel, in addition to Commodore in the U.S. market. Recently the company also announced the formation of a European subsidiary, Europe Cruise Line, which will be leasing the 670-pax. Orient Express for seven-day cruises among the Canary Islands and off Northern Africa.

Too Small to Compete

A spokesman for the Norex Group, which holds a 59 percent interest in BSL, said that the company felt BSL was too small to operate effectively against the large operators which are now beginning to dominate the market.

Effjohn will acquire the 32-year old, 23,395ton, 713-pax. Queen of Bermuda and its sister ship, also 32 years old, the 23,395-ton, 713-pax. Bermuda Star, both of which were leased to BSL. The 10,595-ton, 703-pax. Veracruz, which was also built in 1957 and is owned by BSL, will be leased to Effjohn for an initial period of 12 months.

According to sources, BSL will receive more than $6 million from charter terminations and about $11 million from the sales of cruise trades, related assets and transferred commissions on future bookings.

The Norex Group last week reported a profitable six month period, ending December 31, 1988, attributing much of its earnings to a major turnaround at BSL, which was said to generate profits of $1.4 million in the period and was expected to earn record profits for the full fiscal year, ending June 30, 1989.

However, the results for the quarter ending December 31, 1988, produced a loss for BSL of $493,700 on revenues of $14,142,200, although this is considerably less than the $1.3 million loss incurred in the same quarter last year on revenues of $14,150,400.

At press time, BSL was quoted around $3 on the American Stock Exchange, up slightly from its average trading price of about $2.00 over the last 12 months.

Commodore and BSL

Commodore and BSL share many similar features. While Commodore has had a stable management and reportedly earned money the last couple of years, until recently it was reported that its owners were looking to sell Commodore when the company became a one-ship cruise line in 1986 after selling the Boheme. The line has since succeeded in building a profitable one-ship operation out of Miami.

BSL has suffered several ups and downs since it went public two years ago at an offering price of $6.50 per share. The company has since grown from a two-ship to a three-ship cruise line, but was never able to carve out a successful niche in the competitive cruise market. Instead the last fiscal year's results showed a loss of an estimated $4 million and shares traded around $2. Still, according to travel agents, the BSL ships enjoyed a strong following among those who had cruised with the line.

While the recent management changes may have succeeded in turning the company around, the long term prospects were apparently not strong enough to convince the majority owners, the Norex group, to go on.

Kristian Siem, Chairman of BSL, said that "the sale to Effjohn on this basis is very favorable to BSL, in that we will have cash for meaningful future investments and profit opportunities. There is a trend of consolidation in the cruise industry, and mature, well-financed firms such as Effjohn, who have other cruise interests, are well placed to expand and achieve the economies and cost efficiencies that result from size. To a company at BSL's stage of development, such large steps are either impossible or imprudent."

A spokesperson for Norex said in London that the company will change the BSL name and will be looking at acquiring tanker tonnage and use the cash infusion to develop the group's insurance business.

New Commodore

In a prepared statement, Siem and Hans Christer, President of Effjohn, stated their "intention to operate BSL's business separately from Effjohn's the present itineraries unchanged while upgrading the vessels other cruise interests, maintaining and their product to be able to offer the public a greater variety of higher grade cruises at popular prices."

Insiders pointed out, however, that if Norex felt that BSL was too small to be operated independently, it seemed curious that Effjohn would insist on doing just that when they could just as easily merge BSL with Commodore. Thus, the interesting question now is what is Commodore really going to do with the BSL ships?

Commodore  does not have a national image, with its marketing focus mainly in Florida. BSL on the other hand has a national image, although some insiders said that BSL also suffered from a somewhat tarnished image, in the shadow of the larger and more successful cruise lines. If Commodore were to merge the BSL fleet into Commodore at least the cruise line would start from an even "unknown" identity.

Commodore would instantly go from being a one-ship operation to a four-ship company, before the arrival of a fifth ship, a new 30,000-ton, 15,000 pax. vessel, in 1992. The line, which operates out of Miami, would be able to spread its operations to other Florida ports, the West Coast, Alaska, the East Coast and into the Caribbean.

A spokesperson for Commodore could only confirm the official statement, while phone calls to BSL were not returned.

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