P&O Merger Update

October 7, 2002
As we predicted Friday, all cruise lines involved in plans to merge and/or acquire -- P&O Princess, Royal Caribbean and Carnival -- have issued statements (in some case voluminous in length) in response to the Federal Trade Commission's across-the-board clearance. We'll try to cut to the high points: Most Honest Response: Royal Caribbean, which came straight out and admitted disappointment. "Royal Caribbean Cruises Ltd. today welcomed the decision by the Federal Trade Commission not to object on anti-trust grounds to its plans to merge with P&O Princess Cruises, while noting with regret that the Commission had reached the same decision in respect of the hostile bid for P&O Princess by Carnival Corporation." Most Beleaguered: Has to be P&O Princess, which had, ever since Carnival's unwanted acquisition offer, refused to speak with its executives about the possibilities. In its statement, P&O Princess has now acquiesced. "After consulting with its advisers, the Board has concluded that a DLC combination with Carnival is both feasible and financially more attractive than the agreed DLC combination with Royal Caribbean. Accordingly, as permitted by its agreement with Royal Caribbean, the Board has decided to enter into talks with Carnival to discuss Carnival's DLC proposal." Most Gracious (and determined to hold no grudge): Carnival, naturally, whose offer to acquire P&O Princess, not to mention hold a sit-down to discuss it, had been quite blatantly ignored and rejected. In its statement, Carnival opens with "We are very pleased that P&O Princess has now acknowledged that Carnival's proposal is financially superior and deliverable. We look forward to meeting with P&O Princess to discuss a recommended transaction. Following FTC clearance, our offer no longer has any pre-conditions and we are committed to posting our offer document to P&O Princess shareholders. Carnival is willing to meet P&O Princess despite its failure to recommend Carnival's Increased Offer." The long-awaited FTC decision has now spurred some new developments. In a nutshell, next steps include: * P&O Princess will begin the process of organizing a shareholders meeting who will vote to approve -- or not approve -- the merger with Royal Caribbean. The drop-dead date is November 16, which is the date that the agreement with Royal Caribbean terminates. Regardless, P&O Princess must give shareholders two weeks notice. The outcome, whichever way it goes, will be a new company for P&O; regardless of the winner, reverting back to its pre-merger, pre-acquisition-offer status is not an option. * Expect Carnival to lobby heavily, both in private meetings and through public venues (media campaigns et al.) in an effort to educate shareholders about its offer.

* Carnival is now going to try to make the deal a 50% shareholder approval vs. 75% in the original deal. * P&O Princess and Royal Caribbean have said the FTC agreement on all fronts has given them impetus to go back and review their original agreement. They'll examine ways of changing it so it is, first, more attractive to shareholders than the Carnival offer and also enable it to be approved by a simple majority vote. A reminder: Royal Caribbean and P&O Princess' merger deal is estimated to be worth about $3.8 billion; Carnival bid about $5.0 billion for P&O Princess.