US approves £3bn bids for P&O Princess

Shares in P&O Princess Cruises, the passenger shipping company, are expected to leap this morning after a ruling late on Friday night by the US Federal Trade Commission (FTC) that the bids for the £3bn group can go ahead from two rival American suitors, Carnival Corporation and Royal Caribbean.

The verdict appears to put Carnival in the favourite's position, as P&O Princess had to admit last night that its hostile bid was superior to Royal Caribbean's friendly offer.

Peter Ratcliffe, the chief executive of P&O Princess, said: "We believe the Carnival offer is more attractive and under the terms of our contract we are then allowed to talk to Carnival and that's what we now intend to do. But we're not yet in a position to recommend Carnival."

But he added that several conditions had to be met before he could recommend the Carnival bid, so his formal position is still that of backing the Royal Caribbean offer. Nevertheless, the FTC decision is being seen as a huge embarrassment for Mr Ratcliffe, who for the past eight months has dismissed the Carnival bid as a spoiler designed to prevent Royal Caribbean getting its hands on P&O Princess.

Mr Ratcliffe explained: "With Royal Caribbean, remember, we have a contract and the only outstanding issue on that contract is the shareholder vote from both parties. We continue to believe that that combination will accelerate the creation of value for our shareholders and therefore we continue to recommend it. One other thing we are considering at the moment, with Royal Caribbean, is whether we can adjust the voting to put both transactions on a more equal footing with regard to shareholder approval."

The FTC decision is a crucial setback for Royal Caribbean, which had been lobbying hard to keep the Carnival bid ruled out.

"I'm sure that Royal Caribbean isn't entirely happy with the situation that's developing," Mr Ratcliffe said. "But what you have to remember from our viewpoint is that we did not solicit the bid from Carnival, we did not encourage the bid from Carnival. That bid had been made by Carnival. And once the board sits down and determines that that bid is financially superior and is capable of being delivered, its actually the board's fiduciary duty to go to Carnival and discuss that offer with them. Now, we are allowed to do that under the terms of the contract, and that's what our fiduciary responsibilities require."

Mr Ratcliffe chose his words carefully, because he is acutely conscious that this complicated three-way situation could easily spill over into the courts – a factor which may restrain the P&O Princess share price.

He conceded: "You have to remember we are dealing with an American company and we have a contract under American law and there can be disputes. However, the board has been conscious of that throughout this whole process and has honoured both the letter of the contract and the spirit of the contract."

Shareholders will voice their opinions and vote on the the rival bids at an emergency meeting due to be held in about a month. The Royal Caribbean contract expires on 15 November, while the Carnival transaction is due to be completed in January.