P&O shareholders delay vote

February 15, 2002 Posted: 1031 GMT

LONDON (Reuters) -- The cruise sector's biggest ever bid battle took a new course on Friday, as P&O Princess investors steered away from a merger with Royal Caribbean toward a higher, hostile bid from Carnival Corp.

P&O Princess shareholders on Thursday opted to postpone a vote on their agreed merger with Royal Caribbean Cruises Ltd. and get more time to consider a hostile 3.8 billion pound ($5.4 billion) bid from Carnival, the world's biggest cruise operator.

The bitter takeover battle comes as the three biggest cruise operators seek cost-cutting alliances to counter a slump in tourism since September 11.

Both Caribbean and Princess have said an adjournment of the meeting would jeopardise their merger.

Counting of hundreds of adjournment ballots went through the night as P&O Princess offered to pay for accommodation for its investors.

At around 0500 GMT, P&O Princess said some 253 million shares were cast in favour of an adjournment, and 151.8 million against. It now is up to P&O Princess Chairman Jeffrey Sterling to decide whether to set up another shareholder meeting.

Carnival and Royal Caribbean were not immediately available early Friday to comment on the adjournment.

But Royal Caribbean Chief Executive Richard Fain said on Wednesday he expected the agreed deal and Carnival's hostile bid to fail if a vote on the Caribbean-Princess merger did not go ahead at the special meeting.

Royal Caribbean's shares closed down 5.1 percent at $17.30 in New York. Analysts said this suggested shareholders expected an adjournment to jeopardise Caribbean's deal with Princess.

Carnival shares closed down 0.2 percent at $26.43.

Although Carnival's bid offers a higher premium than the Royal Caribbean merger, analysts say it carries tougher regulatory hurdles than the Caribbean deal, which promises millions of dollars in annual savings.

The Royal Caribbean deal values P&O Princess at 475-500 pence, including the value of estimated post-merger savings, analysts say. Carnival's bid valued P&O Princess at about 550 pence a share when first announced, but P&O Princess is trading at a discount to both bids, partly reflecting regulatory hurdles.

P&O closed at 399 pence on Thursday on the London Stock Exchange.

Carnival's current offer is 0.3004 of its own shares for each P&O Princess share. It also has a partial cash alternative of 250 pence per share.

The adjournment motion was raised by a P&O Princess shareholder representing corporate investor HSBC bank.

The blocking move had been widely flagged ahead of the meeting but it nevertheless prompted angry responses from the many retail shareholders who back the agreed merger. Small shareholders account for only about five percent of P&O Princess' stock.

"The corporates have behaved disgracefully today," said retired ship's captain and retail shareholder David Hawker to a vigorous round of applause.

The risks for P&O Princess shareholders are that Carnival might be unable to get its bid past regulators, leaving them with nothing.

Axa Investment Managers, one of Princess's main shareholders, told Reuters last week it would back the Royal Caribbean deal, but investment banks Morgan Stanley and Deutsche Bank have advised clients to adjourn the meeting.

In an unusually structured deal, no cash or shares would change hands under the Royal Caribbean merger, and both companies would retain separate listings. Princess shareholders will own 50.7 percent of the enlarged group, which would have Royal Caribbean Chief Executive Richard Fain as its new chief executive.