Princess snubs Carnival as EU clears hostile bid

Carnival Corporation renewed its calls to urge P&O Princess to meet the US cruise ship giant to discuss its hostile £3.5bn bid for the UK cruise company yesterday after it won regulatory clearance for its proposed deal from the European Union.

But P&O Princess, which hopes to conclude a separate friendly £5.3bn merger with Royal Caribbean that would see it leapfrog Carnival into the world's number one cruise spot, refused on the grounds that its deal with Royal forbids it.

Despite initially expressing concern that a Carnival/P&O tie-up would be anti-competitive in the UK and Germany, Europe's two biggest cruise markets, authorities in Brussels cleared the deal unconditionally. The commission cited the market's strong growth, lack of entry barriers and rivals' ability to re-deploy capacity to justify its decision.

While Royal Caribbean lambasted the change of heart, threatening possible legal action, competition lawyers said last month's move by the UK authorities to clear the Royal/P&O merger left the Commission little choice but to follow suit. Brussels referred to its "fruitful contacts" with its counterparts in the UK and the US, which is also examining both deals.

Frances Murphy, a competition partner at Mayer, Brown, Rowe & Maw, added that the Commission would have been "very sensitive to the risk of another challenge to a high-profile merger decision" in light of the embarrassing ruling from a top European court last month that overturned a previous Brussels regulatory decision.

Analysts said attention would shift to the US, where antitrust authorities are expected to report by September. Simon Champion at Deutsche said: "The clearest distinction between the deals was probably in Europe. The US decision still very much hangs in the balance [but] our view is that it will clear either both the deals or neither."

Peter Ratcliffe, P&O Princess's chief executive, said yesterday it "would be inappropriate" to ask shareholders to vote on which deal to accept until the US authorities had reached a verdict. In February, shareholders voted to adjourn an extraordinary meeting until all regulatory processes were complete.

Richard Fain, Royal Caribbean's chief executive, criticised the Commission for taking "procedural short-cuts" in its U-turn from its position expressed in May, which signalled Carnival would have to make significant disposals to get the go-ahead.

The Brussels ruling came as P&O Princess reported strong results for its second quarter, showing it has bounced back from the blow dealt to the cruise market by 11 September. It increased pre-tax profits for the three months to 30 June by 5 per cent to $98.9m (£63m) and said it was confident it would "meet or exceed" full-year forecasts.