P&O Princess refuses to postpone ballot

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The Independent Online

P&O Princess Cruises was adamant yesterday that it would proceed with next month's meeting for shareholders to vote on the planned $6bn (£4.2bn) merger with Royal Caribbean despite a counterbid from Carnival Corporation, the market leader.

The Florida-based Carnival launched a 456p-a-share offer late on Sunday night to trump the proposed nil-premium tie-up between Princess and Royal Caribbean in an attempt to stamp its position as the world's largest cruise company.

However, Peter Ratcliffe, Princess's chief executive, insisted that he could not recommend Carnival's approach because it was not in shareholders' best interests.

"We have a bird in the hand that has already generated significant value. This would have had to be a superior bid for us to accept it," said Mr Ratcliffe. "In the short term, the price just doesn't cut it."

The cash-and-share bid from Carnival, which is controlled by the Arison family, values Princess at £3.2bn. Under the terms of the offer, Princess shareholders would receive 200p in cash plus 0.1361 Carnival shares for each Princess share held. The approach represents a 27 per cent premium to the UK cruise ship operator's Friday night close of 360p.

Mickey Arison, Carnival's chairman and chief executive, said the company had no choice but to go hostile after Mr Ratcliffe refused to discuss the offer. He urged Princess's shareholders to demand that the board postpone the extraordinary general meeting, scheduled for next month. If the meeting went ahead, and shareholders voted for the Royal Caribbean proposal "we will have to go home", said Mr Arison.

Analysts said that Carnival, which operates in the North American, British and European markets, would have to increase its offer to at least 500p if it were to have any chance of success. Shares in Princesss, which is chaired by Lord Sterling, gained 5 per cent, rising 18p to 378p as investors relished the prospect of a hostile bid battle.

One independent analyst, who did not wish to be named, said: "There is more upside with Royal Caribbean and more chance of getting it through the regulator, so ultimately Carnival would have to put the price up to get a recommendation to take it to shareholders."

The biggest stumbling block – for both deals – will be regulatory approval. Carnival's offer is conditional on antitrust clearance, which will be required from the US and European Union authorities. The proposed Royal Caribbean/Princess tie-up will bypass Brussels, needing approval instead from the UK, German and US regulators.

Howard Frank, Carnival's chief operating officer, said that the two deals would face similar antitrust issues. "What makes us the larger company is not number of berths, but our profitability, our return on capital invested and our market capitalisation," he said. Mr Frank added that the company had been advised that it would face fewer problems getting clearance from the EU than from the US.

Analysts said regulatory approval will hinge on whether the authorities regard cruising as part of the wider vacation market or as a separate market segment. As a proportion of the cruise market, an alliance of either the number one and two or numbers two and three would create a formidable leader. The top three operators already control 75 per cent of global capacity. Carnival is estimated to have 29 per cent of the US and European cruise market; Royal Caribbean to have 23 per cent and Princess to have 13 per cent.

However, as the recent downturn in the travel sector demonstrates, cruising competes alongside any other holiday.