RCI/Princess Merger Approved in UK

June 19, 2002

As predicted here earlier this week, the proposed merger between P&O Princess and Royal Caribbean takes a step forward on the regulatory approval trail with the “okay” they received today from the U.K Department of Trade. The Competition Commission’s approval was based on its assessment that the merger between the industry’s number two- and number three-largest cruise lines would not likely reduce diversity of cruises for British travelers or hold back industry growth and or competition.

Next step: P&O Princess and Royal Caribbean must wait for a decision -- and this is the most important one because both cruise lines’ major passenger bases are in the U.S. -- from America’s Federal Trade Commission. That decision is expected to be announced in late July/August. After that...the decision will rest in the hands of P&O shareholders.

Carnival which has made a hostile bid for P&O Cruises, still awaits its European Commission review, not to mention a similar kind of study by the U.S. Federal Trade Commission. At this point, it looks like Carnival may have to agree to sell off some United Kingdom or German operations to win approval by the European Union regulators though despite a nudging from Royal Caribbean that it should divest itself of Cunard, Carnival has vociferously denied it would ever let go of that line. In fact, Carnival has said it will likely divest itself of P&O’s United Kingdom unit should the European Union Commission require some kind of sell-off.

Ultimately, both deals must get full approvals from the various involved regulatory bodies before the proposals can be brought up for vote by shareholders.

The cruise-triangle originated when Royal Caribbean, which is the second biggest cruise line with 23 ships and roughly a 22 percent market share, announced a planned merger with Princess. The deal is considered to be worth about $3.7 billion for Princess shareholders. P&O Princess itself, the number three-sized company, has 18 ships and 13 percent of the market. Later, and uninvited, Carnival, the largest cruise line, with 43 ships and a 27 percent market share, entered the arena by proposing an acquisition of P&O Princess. P&O shareholders gathered last winter to vote on the original merger proposal then tabled the vote in order to give them more time to assess the quality of both deals -- and to wait for the various regulatory agencies to weigh in with necessary rulings.