Cruise operators to merge

November 20, 2001 Posted: 1340 GMT

LONDON (CNN) -- P&O Princess Cruises and Royal Caribbean Cruises have said they will merge in an attempt to save costs amid a slump in travel following the September 11 attacks in the U.S.

The merger will form the world's largest cruise vacation group, with a market value of around $6 billion, and will save in excess of $100 million a year.

Cruise operators have been suffering since the attacks as many passengers cancelled trips, forcing operators to lower fares in an effort to win them back. Last month, Royal Caribbean posted a 20 percent drop in third-quarter profits following the attacks, although travellers were beginning to respond to cheaper tickets.

Cruise operator American Classic Voyages filed for bankruptcy in October, a month after privately-held U.S. rival Renaissance Cruises also filed for protection from its creditors.  

P&O Princess and Royal Caribbean have cancelled trips and have rerouted cruises as a result of the tensions in the Middle East and the U.S. air strikes against Afghanistan.

Richard Fain, Chairman and Chief Executive of Royal Caribbean, said in a statement the merger would enable both firms to see "near-term cost savings and increased efficiencies that will help us respond to any short-term challenges while building a stronger group."

P&O Princess will own 50.7 percent and Royal Caribbean, the No. 2 cruise operator, will own 49.3 percent of the enlarged group, which will have a dual listed company structure similar to Royal Dutch Shell, the world's second-largest publicly traded oil company, and mining behemoth BHP Billiton.

Each Royal Caribbean share will be equivalent to about 3.46 shares in P&O Princess.

"It makes sense for the two to join forces as there are considerable synergies," Gunnar Holen, an analyst with Fearnley Fonds in Oslo, told Reuters.

"The exchange is close to the share prices, (but) with a small premium for Royal Caribbean. However, Royal Caribbean was traded with a discount compared to Princess, so in view of this it was only to be expected."

The combined group, based in Miami, Florida, will have a fleet of 41 ships and some 75,000 berths with leading positions in the Caribbean trade and destination trades, including Alaska, the Mediterranean, the Baltic and the Panama Canal.

The merged company is set to challenge the current market leader Carnival Corporation.

Shares in P&O Princess, the third-largest cruise operator, surged 13 percent to 358 pence in pre-market trade on Tuesday. The stock had lost about a fifth of its value since the September 11 attacks.

Royal Caribbean's Oslo-listed shares were up over 18 percent at 164.50 Norwegian crowns. The stock closed at $15.01 on the New York stock exchange on Monday.

Peter Ratcliffe, Chief Executive Officer of P&O Princess Cruises, said: "Our industry has sustainable long-term growth characteristics, despite the impact of recent events on short term trading."