Carnival prepares to loosen strings in £3.2bn P&O offer

The American cruise ship giant Carnival is considering relaxing some of the preconditions of its £3.2bn offer for P&O Princess Cruises in a renewed effort to break up its UK rival's friendly merger with Royal Caribbean Cruises.

Speculation mounted over the weekend that the Miami-based suitor was willing to back down on some conditions, which Princess has cited as a reason for rejecting Carnival's bid.

"Most conditions fall away if we can sit down and talk to P&O Princess," a Carnival spokesman said yesterday.

Among these is an upper limit of $200m (£140m) for the cost of unwinding a joint venture between Princess and Royal Caribbean in southern Europe and a condition that Carnival has arranged funding on satisfactory terms.

The full terms of Princess's $7bn (£4.8bn) agreement with Royal Caribbean will be released this week in a circular to shareholders. It will detail the precise nature of the joint venture poison pill as well as a further $62.5m break-fee payment inserted to prevent Peter Ratcliffe, Princess's chief executive, from touting around the company.

Carnival, the world's largest cruise line, has said that if the sting of the poison pills can be reduced it is prepared to share the savings with Princess's shareholders and increase its offer. The US company is offering 200p cash and 0.14 of a share for every Princess share, valuing Princess at 459p a share based on Carnival's Friday night close of $27.63.

Analysts have said that Carnival, which is controlled by the Arison family, will need to raise its offer to at least 500p a share in order to have any chance of success. On Friday, Princess closed up 14.5p at 399p.

While Mr Ratcliffe last week appeared to have softened his stance towards Carnival, by agreeing to postpone an extraordinary shareholders meeting by some six weeks to 14 February, he has repeatedly refused to meet Mickey Arison, Carnival's chief executive.

Mr Ratcliffe has said that he would not talk to the hostile party without "a firm and superior offer". He gave Carnival until 18 January to step in with an unconditional offer and prove that its play for Princess was not merely a "spoiling tactic". On three occasions in the past four years Carnival has stepped in with an offer for a rival company, only to later walk away.

However, Mr Arison insists he is committed to Princess, highlighting several conversations he has had in the past with Lord Sterling of Plaistow, P&O's chairman.

Carnival is also understood to be close to issuing a statement detailing the level of synergy benefits it can achieve by acquiring Princess. This could be crucial in determining whether the US company can increase its offer, analysts argue. Princess and Royal Caribbean have forecast $100m of annualised synergies.

Meanwhile, Carnival is preparing to appeal to the full Takeover Panel regarding the scale of the $62.5m poison pill, which is twice as much as would be allowed under UK takeover rules. This, however, follows a ruling last week from the panel's executive that the Princess/Royal Caribbean merger falls outside its remit because of its dual listing structure.