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Carnival's 'cruise' missile
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June 26, 1997: 3:45 p.m. ET
Cruise stocks turbulent after Carnival starts bidding war for Celebrity
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NEW YORK (CNNfn) - Two major cruise ship lines took hits on Wall Street Thursday after they started a battle for a third.
Carnival Corp. (CCL) saw its share price drop 5/8 in midday trading Thursday on the New York Stock Exchange after opening at 43. Late Wednesday, Carnival fired a shot across the bow of rival Royal Caribbean Cruise Lines in the battle for Celebrity Cruise Lines, which is controlled by Overseas Sholding Group and Chandris Group.
Carnival offered to buy Celebrity for $525 million. Including debt assumption, the total value of the deal -- a stock and cash offer -- would be $1.325 billion.
The move was a slap at Royal Caribbean Cruise Lines, which announced last week that it had a stock and cash takeover package for Celebrity valued at $1.3 billion.
In reaction to the rival bid, Royal Caribbean (RCL) shares fell by almost 2 after opening at 36-5/8.
"We believe our new proposal is extremely attractive to your stockholders and is clearly superior to your announced transaction with Royal Caribbean," Carnival chairman Mick Arison told Celebrity president Morton P. Hyman in a letter accompanying the offer. Mr. Arison argued that Carnival was a better "strategic fit" and urged Celebrity not to enter into a definitive merger with Royal Caribbean until the Carnival offer could be fully reviewed.
"We've acknowledged receipt of Carnival's proposal and indicated that we would contact them if we have any interest in pursuing it," said Robert Cowen, senior vice president of Overseas Shipholding.
Despite the market's reaction, analysts think either cruise line could do well by the merger.
"Celebrity is a better fit for Carnival than for Royal, but the idea of Celebrity as an upscale version of Royal's service is not bad either," said Paul Mackey of Buckingham Research.
Carnival, Mackey noted, has a number of cruise ship operations accounting for nearly a third of the world's cruise ship traffic, but nothing dedicated to the highly lucrative New York-Bermuda route. Celebrity would fill that gap, he suggested, allowing Carnival to immediately make money on the deal.
Royal, on the other hand, already serves Bermuda. But Royal could use Celebrity as way to establish an upscale, premium service separate from its current tourist service offerings, he suggested. But that would take some time to payoff, he said.
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