Norwegian to Acquire Regent and Oceania?

| Monday, 01 Sept. 2014

Rumors are out  that Norwegian Cruise Lines is trying to buy Prestige Cruise Holdings.

A weekend article in Forbes first made public what is being described as an open rumor for the last few months already - the Norwegian Cruise Lines wants to acquire the cruise lines of Prestige Cruise Holdings, the parent company for Oceania Cruises and Regent Seven Seas.

Norwegian CEO Kevin Sheehan starts the steel cutting for a new ship for Norwegian Cruise Line

Norwegian Cruise Line is the third largest cruise line in the U.S. - and the world. In fact, there are only three major cruise corporations in the world and NCL is a distant third to (1) Carnival Corp. (which owns Carnival Cruise Line, Costa, Cunard, Holland America, Princess and Seabourn among other European brands) and (2) Royal Caribbean International which owns Royal Caribbean, Celebrity Cruises and Azamara (their version of Seabourn-like small ships). All together, Carnival owns over 50% of the cruise market, Royal Caribbean owns just under  40% and the rest is mostly owned by Norwegian, with several other small fleet cruise lines filling out the cruise industry.

If Norwegian buys Prestige Cruise Holdings they will acquire the five ships of Oceania Cruises and the three ships (with a fourth one under construction) of Regent Seven Seas. Oceania is a very highly rated, popular and successful cruise line which generally falls into the "upscale" category, although many people consider them to be just as good as other luxury cruise lines. Regent Seven Seas is  one of the to- rated luxury cruise lines in the world.

Is This Really Newsy?

Not really, because right now both Norwegian Cruise Lines and Prestige Cruise Holdings have a common financial backer, a private equity group called Apollo Management which owns 59% of Prestige and a large stake in shares of NCLH, the holding company for Norwegian Cruise Line.

NCL just went public on the NasDaq stock exchange last year. Another large shareholder in NCLH is Genting Hong Kong (which also owns the Malaysia-based Star Cruises) however Genting is currently exiting its position, with the intention of selling its shares in NCLH while Apollo buys an even larger stake as more shares become available. The sale of a large number of shares directly to Apollo at some point is always a possibility.

This all sounds complicated and in fact it is somewhat meaningless when it comes to the operation of all these cruise lines in the long term. Right now, Norwegian acquiring Prestige is analogous to Grandma giving the deed to her home to her children - no real change in ownership because Apollo Management, already owns a large stake, and has the majority of members on the board, of all three cruise lines. But Apollo is in business to invest and make a profit through what is called an "exit strategy," meaning someday Apollo will leave and Norwegian will on its own, with no big brother calling the shots, and they could still own Oceania Cruise and Regent Seven Seas (assuming the deal goes through).

Some people may find it "shocking" that a very mainstream company like Norwegian Cruise Line (think "Holiday Inn") would acquire such prestigious companies as Oceania and Regent (think "The Plaza" in New York City). But, in fact, Norwegian Cruise Lines is one of the oldest cruise lines in the modern era of cruising  and in the past the line has owned some of the most elite brands in the world.

At one point Norwegian owned Royal Viking Line, at the time the most luxurious and upscale cruise line in the world. They ran the company successfully for many years. The line also owned Orient Lines for over a decade, a small ship line like the early Oceania which specialized in small ship, longer destination-oriented cruises. So, Norwegian is no stranger to running smaller, more specialized cruise lines.

What Would Change?

What would change if Norwegian successfully acquires Prestige Cruise Holdings?  Probably very little. The management of Prestige, running both Oceania and Regent, is very adept and committed to excellence, so it is doubtful you would see noticeable change in the onboard experience at either cruise line. All three of the cruise lines involved have solid onboard experience formulas proven to be popular and profitable.

However, all three cruise lines (Norwegian, Oceania and Regent) also already have strong operational support systems, such as supply and passenger sales and transportation networks, throughout the U.S. and Europe, Australia and even Asia. It is very likely there would be some integration and consolidation of these systems to eliminate redundancies and provide behind the scenes cost benefits to all three cruise lines.

The tendency by some consumers in these circumstances, is to always pretend they see a downward shift in quality at the better cruise lines, so I would expect to hear talk of the "Norwegianization of Regent" in the future if someone does not like a certain meal, for example. But in truth, knowing people like Frank Del Rio (the CEO of Prestige Cruise Holdings) personally, I can guarantee that he would never allow anyone to sacrifice his standards of quality in order to save a few dollars at either Oceania or Regent.

The Details

Prestige Cruise Holdings, with Oceania and Regent Seven Seas, currently operates eight ships totaling 6,442 berths. The 750-berth Seven Seas Explorer is in the design stage construction and scheduled to bring the new berths to the fleet in 2016.

Norwegian currently has 13 ships in service, but each of them much bigger and with far more beds than either of the Prestige cruise lines' ships. Plus it has four new ships on order, which will bring a total of 16,800 new berths to the Norwegian Fleet - almost double (just in new ships yet to arrive) all of berths of Prestige Cruise Holdings combined. Those new ships will be delivered in the fall 2015, spring 2017, spring 2018 and fall 2019.

The new fleets would give Norwegian a presence in the contemporary, upper premium and luxury cruise segments, something Norwegian has not had since the beginning of the 21st Century.


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