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Old June 25th, 2002, 11:01 PM
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Default Princess Merger

I got the following information dated June 25 from an email that Cruise News Daily sent me for their headlines:


* Feature Story:
The UK Competitive Commission approved the RCCL/P&O-
Princess merger proposal, but it doesn't automatically
mean that merger will happen. The decision is also good
news for rival suitor Carnival Corp.
This approval is not all the only approval needed for
the Royal Caribbean offer. The big hurdle to still clear
is in the US. Without approval of all the governments,
nothing goes forward.
It's also important to realize that just because Royal
Caribbean got a thumbs-up, it doesn't mean that Carnival
got a thumbs-down. Quite the contrary; it could be a very
good sign for Carnival.
Carnival, all along, has said that they felt that
either both their proposal and Royal Caribbean's would
both be approved or both be denied by the regulators.
They said they feel it hinges on if the regulators look
at the vacation industry as a whole (merged cruise
companies would control a very small percentage of that
market) or if the regulators look at only the cruise
industry (where merged companies would control a larger
percentage).
In the statement last week by UK regulators, they said
that they approved the Royal Caribbean proposal based on
the view of the small amount of the entire vacation
market the merged companies would control.
For technical legal reasons, Carnival's proposal is
being reviewed by the EU commission, while Royal
Caribbean's was reviewed by the UK and Germany. The
German trade commission previously gave the green light
to the Royal Caribbean proposal. Carnival is still
awaiting action by EU commission. In a conference call
today, P&O Princess' Peter Ratcliffe said that it would
be unusual for UK and EU regulators to define the market
differently (meaning that since the UK is looking at the
whole vacation industry, rather than just the cruise
industry, the EU will likely be looking at the Carnival
proposal in the same way).
Add to it that Carnival has been very open about being
willing to divest any of its holdings (including P&O
cruises) that the EU would require to approve the
proposal - except Cunard Line, therefore Carnival
management feels approval can be negotiated.
Ratcliffe says that P&O Princess attention now turns
to gaining a favorable decision in the US. Decisions by
US regulators are expected this fall.
If both proposals are ultimately approved by all the
governments, it will put things right back where they
were at the beginning of the year. Then the decision will
ultimately be back in the hands of the P&O Princess
shareholders to decide. When we last left that
cliffhanger, they had defied the board of directors'
recommendation to approve the Royal Caribbean proposal
(which still would have needed all the governments'
approvals), and put everything on hold to see if both
(Carnival's and RCCL's) proposals would gain the
regulatory approvals and if they actually did have a
choice.
The board of directors was telling them that the Royal
Caribbean proposal was the better offer, but the
shareholders obviously saw that Carnival had something
very worthwhile to offer them, so they went against the
board's recommendation and tabled any action on the RCCL
proposal, despite (now apparently empty) threats by RCCL
that if they didn't approve the merger at that time, RCCL
would withdraw the offer. The P&O Princess shareholders
will still apparently be interested in what Carnival has
to say once everything gets approved.
Despite how some of the media is making it look,
Wednesday's ruling by the UK is only one step in this
whole process.
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  #2 (permalink)  
Old June 26th, 2002, 09:48 PM
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Default Re: Princess Merger

CruzNut,

This article looks like pure propaganda from Carnival Corporation (NYSE: CCL). It ignores several pertinant facts and misrepresents other significant information.

>> 1. The European Union has already issued a preliminary determination that Carnival Corporation would have to sell its "Cunard Lines Ltd." unit in order to obtain approval to proceed with the hostile tender offer for P&O Princess Cruises Plc. (LSE: POC). Carnival Corporation responded with a press release saying that the company would not sell its "Cunard Lines Ltd." unit. There's a significant competition issue here because the "Cunard Lines Ltd." unit of Carnival Corporation and the "P&O Cruises" unit of P&O Princess Cruises Plc. are the largest cruise operators in the British market. So long as the stalemate continues, the hostile takeover will not gain approval.

>> 2. In ruling on the proposed merger between P&O Princess Cruises Ltd. and Royal Caribbean Cruises Ltd. (NYSE: RCL), the British Office of Fair Trade explicitly stated that there was no need to define the relevant market because the matter was moot due to the lack of presence of Royal Caribbean Cruises Ltd. in the British market. The Office of Fair Trade noted that there can be no loss of competition when one of the parties is not a competitor in the market. I have not seen the ruling from the German authorities, but it's certainly reasonable to assume that they took a similar tact since Royal Caribbean Cruises Ltd. also has essentially no presence in the German market. In fact, the only presence that Royal Caribbean Cruises Ltd. has in Europe is a new joint venture with P&O Pirncess Cruises Plc. that has not even started operations yet. Anyway, the bottom line here is that there's no definition of the relevant maket for the European Commission to accept or to reject, and any representation to the contrary is pure wishful thinging on somebody's part.

My guess is that the hostile take-over of P&O Princess Cruises Plc. by Carnival Corporation probably will not gain approval iin Europe, whereas the merger of P&O Princess Cruises Plc. and Royal Carribean Cruises Ltd. has already gained approval.

The situation is pretty similar in the United States.

>> Regulators here in the States rejected Carnival Corporation's attempt to acquire Norwegian Cruise Line before Norwegian Cruise Line became part of Star Cruises last year due to antitrust concerns. Since the "Princess Cruises" unit of P&O Princess Cruises Plc. here in North America is larger than Norwegian Cruise Line, the hostile take-over cannot be any less anticompetitive than a merger that regulators have already rejected. On that basis alone, rejection is virtually certain unless P&O Princess Cruises Plc. goes into bankruptcy.

>> The proposed merger of P&O Princess Cruises Plc. and Royal Caribbean Cruises Ltd. will create another competitor that will be approximately equal in size to Carnival Corporation. Regulators generally view transactions that create an approximate equal to the largest player in the market as favorable to competition, and there's no reason to expect this merger to be any different. Thus, approval is very likely.

The issue that appears most likely to derail the proposed merger of P&O Princess Cruises Plc. and Royal Caribbean International is the required approval of the shareholders of P&O Princess Cruises Plc. The special shareholders' meeting convened to approve the merger last March was quite contentious, lasting nearly 24 hours before voting to adjourn without taking a vote on the proposed merger. According to the press releases, British instiational shareholders said that they wanted to see how the competition authorities would rule on both proposals before voting on either. In reality, however, it does sound like they really do not view the proposed merger very favorably.

Norm.
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Old June 26th, 2002, 10:48 PM
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Default Re: Princess Merger

Always good hearing from you, Norm. You've said you're a voting stockholder of P&O so I presume you have some inside track on this kind of information.

Hope you're right about your fellow stockholders perception of the Carnival bid. (I've never had a high opinion of Carnival.)

Very interesting points you make ... wonder why Cruise News Daily didn't have a clearer perception of all the angles involved in these approvals!

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Old June 28th, 2002, 08:27 AM
BillG
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Default Re: Re: Princess Merger

I think that if you read Cruise News Daily's reporting on this issue carefully, you will discern what appears to be a slight bias towards Carnival. However, they correctly point out that shareholders will probably determine the eventual outcome, and, unfortunately IMHO, the interests of the institutional investors, who control much of the stock, seems to be directed more at short term financial gain rather than what is necessarily in the long term best interest of Princess in particular or the cruising public in general
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Old June 28th, 2002, 10:13 PM
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Default Re: Re: Princess Merger

Jane,

"Always good hearing from you, Norm. You've said you're a voting stockholder of P&O so I presume you have some inside track on this kind of information."

Actually, I don't have access to anything that is not publicly available. I just keep an eye out for press releases on both the Princess Cruises web site (http://www.princess.com) and the web site or parent company P&O Princess Cruises Plc. (http://www.poprincess.com). With regard to the proposed merger with Royal Caribbean Cruises Ltd., there might be additional information in the press releases on that company's main web site (http://www.rclinvestor.com).

Norm.
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Old June 28th, 2002, 10:17 PM
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Default Re: Re: Princess Merger

Jane,

"Very interesting points you make ... wonder why Cruise News Daily didn't have a clearer perception of all the angles involved in these approvals!"

Most news sources just relay press releases that they receive from various companies. If a company issues a press release with a particular slant, out it goes with that slant. That's why a discerning eye is so important when you read any news.

BTW, sorry about the second reply. I forgot to answer this point before hitting the "post" button on the first.

Norm.
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Old June 28th, 2002, 10:19 PM
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Default Re: Re: Re: Princess Merger

Bill,

Unfortunatly, your comments regarding institutional shareholders (1) holding sway and (2) looking for the immediate return rather than the long-term future of the company are right on. Fortunately, it looks like the antitrust regulators will block Carnival Corporation's attempt to acquire P&O Princess Cruises Plc.

Norm.
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Old June 28th, 2002, 10:23 PM
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Default Re: Princess Merger

Hope you're right Norm, but I can understand why stockholders want to get the biggest bang for their buck ... even if I think they're wrong in this case. Sure hope Carnival doesn't win out.

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Old June 30th, 2002, 02:07 PM
David Starkey
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Default Re: Re: Princess Merger

As an avid longtime share holder of all three cruise lines I hate to see a merger between any of them. On the question that P&O will get a better reception from the European regulators as P&O is a long established British company. I do feel that the playing field is somewhat uneven in Europe. When they are voting on two European companies vs and American based company. (the US company will not win out). The merger to me offers nothing to RCI and I do not understand how the merger with Princess will improve my share value there. Princess had a different way of looking at things and still is dominated by the P&O (British) was of doing business or even thinging about business. I understand the economic benefits of bulk buying power and the savings that can be created, but truly I would rather see the each line be separate and not be owned by another. Each separate line has there strengths and when they merge ..a little of "specialness" or "idenity" is lost too. You only need to look at Princess takeover of Sitmar or Celebrity takeover by RCI. ...By the way..."merger of equals" as Princess and RCI call it seldom work.
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Old June 30th, 2002, 09:55 PM
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Default Re: Re: Re: Princess Merger

David,

I decided not to buy any shares of Carnival Corporation (NYSE: CCL) because the company seems to have about the same attitude toward its customers and toward the qualtiy of its product that General Motors had in the 1970's, 1980's, and 1990's -- which is a sure recipe for loss of market share.

Although I would prefer not to see it happen, the proposed merger between Royal Caribbean International (NYSE: RCL) and P&O Princess Cruises Plc. (LSE: POC) probably would not be a disaster. As proposed, each line will retain its identity although there could be some degree of repositioning (with a possibility of Celebrity Cruises moving upscale to the "luxury" segment?) to diminish overlap. In reality, though, the real competition in the market right now seems to be between these two companies. If P&O Princess Cruises Plc. wants to merge with another company, a merger with Star Cruises would seem to make more sense. This would add that company's namesake line, which operates primarily in the Pacific Rim, and the mainstream Norwegian Cruise Line to the company's current array (Princess Cruises in North America, P&O Cruises and Swan Hellenic Cruises in the U. K., Aida Cruises/Seetours and A'Rosa in Germany, and P&O Cruises in Australia). Such a merger would pose even fewer antitrust issues than the proposed combination because the two lines in North America -- the only place where there's a common presence -- are in different segments of the market and therefore do not compete head to head.

Norm.
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