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P&O Princess Cruises plc. Rejection of pre-conditional offer from Carnival
On 30 January 2002 Carnival Corporation ("Carnival") revised its pre-conditional offer to acquire P&O Princess Cruises plc ("P&O Princess"). Carnival announced that it would, subject to the satisfaction of its regulatory pre-condition, make an offer to acquire P&O Princess. That offer currently values P&O Princess at 509 pence per share (based on Carnival's closing share price on 1 February 2002 of US$26.88 and a US$/UK£ exchange rate of 1.4162). The Board of P&O Princess (the "Board") has now had the opportunity to review Carnival's latest offer in detail with its advisers and has concluded that the revised offer is not as favourable financially to P&O Princess shareholders ("Shareholders") and is less likely to be completed than the transaction with Royal Caribbean Cruises Ltd. ("Royal Caribbean"). Further details of the Board's considerations are set out below. The Board therefore continues to recommend that Shareholders vote in favour of the proposed combination with Royal Caribbean (the "Combination") at the Extraordinary General Meeting (the "EGM") on 14 February 2002 and vote against any proposal to adjourn the EGM. Value In its announcement on 30 January 2002, Carnival stated that its latest offer was equivalent in value to the proposal it made on 17 January 2002, which the Board had already determined was not as favourable financially to Shareholders as the Combination. In its revised offer, Carnival has changed the proposed consideration from a part-share and part-cash proposal to an all share proposal. It should be noted that Carnival shares are not included in the FTSE UK indices. Unless Shareholders are willing and able to retain Carnival shares, they would, in effect, be cashing out and would not be able to participate either in the value creation potential of P&O Princess, or that of the Combination. They would also not be participating in the near-term recovery, or any future growth and global diversification of the cruise sector of the vacation market. Furthermore, the impact of flowback on Carnival's share price at the time of completion might result in Shareholders being unable to realise the full value of Carnival's offer. Additionally, the Board continues to believe that the price offered by Carnival does not fairly reward Shareholders for the value that would be created for Carnival and its shareholders from the integration of P&O Princess into Carnival. In consultation with its financial advisers, and after taking into account all the above-mentioned factors, the Board has concluded that the revised takeover proposal from Carnival is not as favourable to Shareholders from a financial point of view as the Combination. Deliverability The Board recognises that Carnival has reduced the pre-conditionality of its takeover proposal and notes that under the terms of the Takeover Code it is in effect committed to proceed with its offer in the event that its anti-trust pre-condition is satisfied. The Board together with its advisers has also reviewed the conditions to Carnival's offer in the light of all information available to it. Apart from anti-trust issues, the Board does not see any reason why those conditions relating to P&O Princess should not be capable of satisfaction. However, the Board remains concerned as to the motivation of Carnival. Carnival may be indifferent between acquiring P&O Princess and breaking up the Combination, given that both outcomes would result in Carnival preserving its position as the world's largest cruise ship operator and its leadership position in both the United States and Europe. Accordingly, the Board is concerned that Carnival's regulatory pre-condition continues to require satisfaction "in terms satisfactory to Carnival". This still gives Carnival wide discretion as to whether or not to make an offer. As currently proposed, Carnival could withdraw for as simple a reason as the European Commission undertaking a stage II examination of the takeover. There is no evidence of any commitment on Carnival's part to resolve any issues that may be raised by the European Commission or the US Federal Trade Commission. Regulatory issues The Board considers that it is inappropriate to respond to the various detailed contentions made by Carnival asserting that there is no material difference between the regulatory positions of the two proposals. The fact is that the various regulatory bodies will be undertaking a lengthy assessment of all the competition issues that they deem may be relevant to both transactions. Speculating about what those issues may be and providing a superficial summary of those deliberations is both inappropriate and unhelpful. The Board continues to believe that there is a material difference between the relevant substantive facts of the two proposals from an anti-trust perspective. The Board considers and has been advised by its legal advisors and economists, that a combination with Carnival, the world's leading cruise operator and the leader in both the United States and Europe, is likely to create materially more significant regulatory issues and risks than the Combination, particularly if Carnival chooses not to work with the various regulators to overcome and resolve any conditions or issues that may arise. The Board has therefore concluded that the revised Carnival proposal, despite the reductions to its pre-conditionality, has significant completion risk and is less likely to be delivered than the transaction with Royal Caribbean. Adjournment of the Extraordinary General Meeting The Board has noted the speculation regarding the consequences of Shareholders proposing and voting in favour of adjournment of the EGM to be held on February 14. The Board would like to clarify its position on this issue. After consulting with its legal advisers and reviewing the background facts, P&O Princess believes that the proposal and approval by its Shareholders of a resolution to adjourn the EGM should not give Royal Caribbean the right to terminate the implementation agreement with P&O Princess that provides for the Combination (the "Implementation Agreement"), although there is a risk that Royal Caribbean could take a different view. Given the background and current circumstances, Royal Caribbean could reasonably be expected to object to an adjournment of the EGM and, if it occurs, to explore all possible avenues for terminating the Implementation Agreement. As a practical matter, this could threaten the ultimate success of the Combination. The Board will shortly be writing to Shareholders to recommend that Shareholders should vote in favour of the resolution to approve the Combination at the EGM, and also recommends that Shareholders should vote against any resolution that may be proposed to adjourn the EGM. Combination with Royal Caribbean The Board believes it is important that Shareholders not lose sight of the benefits of the Combination when considering the appropriate course of action. The Combination will create a global cruise line of approximately the same size as Carnival. It will have the brands, assets, global reach and cost cutting potential to be a formidable competitor to Carnival. Through a combination of improving operating margins and increasing the rating of its shares, the Combination has the potential to accelerate value creation for Shareholders. The Combination will enable Shareholders to participate in the upside potential of both the Combination and the cruise sector of the global vacation market. Through the dual listed structure, P&O Princess shares will remain in the FTSE All Share Index, allowing all P&O Princess shareholders to retain their shares following completion of the Combination. P&O Princess also has a committed partner, a signed contract and the irrevocable commitment of Royal Caribbean's major shareholders to vote in favour of the transaction at their EGM, which is also to be held on February 14. Conclusion Based on the foregoing analysis, the Board, which is being advised by Schroder Salomon Smith Barney, will shortly be writing to Shareholders stating that it continues to recommend that Shareholders should vote in favour of the resolution to approve the Combination at the EGM, and also recommends that Shareholders should vote against any resolution that may be proposed to adjourn the EGM. Peter Ratcliffe, Chief
Executive of P&O Princess said today: "Carnival appear to have adopted a strategy of incrementally improving their offer in an attempt to find the minimum proposal necessary to delay our EGM, which if successful could threaten the transaction with Royal Caribbean. Without Royal Caribbean, our shareholders would be left with only the less valuable Carnival proposal, which itself may not be delivered. "We continue to question whether Carnival is indifferent between breaking up our deal with Royal Caribbean and completing a takeover of P&O Princess. In either event they will remain the world's largest cruise line and the leader in both Europe and North America. Carnival could use the regulatory process to avoid making or completing an offer. "The Combination with Royal Caribbean is a unique opportunity to accelerate the creation of value for our shareholders. We continue to recommend that shareholders vote in favour of the Combination at next week's EGM." |
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