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P&O to spin off cruises
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February 3, 2000: 4:58 a.m. ET
World's third-largest cruise business to be valued at up to $9 billion
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LONDON (CNNfn) - Peninsular and Oriental Steam Navigation Company said Thursday it will spin off its cruise business, the world's third largest, forming a separate company with a potential market value of up to 5.5 billion pounds ($8.9 billion) and share listings in London and New York.
The news sparked a 24 percent jump in shares of the U.K. company, known as P&O. The stock reached 1,030 pence in London.
"This forces the market to address the value in the cruise business," said Williams de Broë transport analyst Andrew Darke.
"The cruise company will be a purist business," commented P&O chairman Geoffrey Sterling, who will also chair the new company, which has yet to be named. "This will be a powerful company."
The spinoff needs shareholder approval, and will probably take place in October or November.
Sterling said the demerger would provide new motivation for the cruise unit's managers, who had greeted the news "with excitement". The division's profits have been growing fast and P&O plans substantial increases in capacity for the coming years. Analysts have penciled in operating profits for the cruise unit of 295 million pounds for 2000, up 20 percent from the 245 million pounds the company is expected to report for 1999.
P&O operates Princess cruises in the United States and other cruise operations in Europe and the Caribbean.
The new firm could become the target of bid attention from industry leader Carnival Cruises of the U.S., which in the past has cast an eye over P&O's cruise operations. The industry consolidated this week with an agreement by Carnival and Singapore's Star Cruises to mount a joint bid for Norway's NCL.
"We'll just get on with running our business," said Sterling, who admitted he had considered making an offer for NCL.
After the demerger, P&O will focus on its remaining distribution, ferry and port operations.
"My ambition is to have two companies in the FTSE 100," the leading U.K. stock market index, Sterling told CNNfn.com.
Analysts said the split would narrow the gap between P&O's stock market capitalization and the theoretical aggregate value of the company's various parts. Williams de Broë's Darke calculates the company is worth something more than 1,200 pence per share.
P&O, one of Britain's oldest companies, has substantially slimmed its range of businesses in recent years, arresting a disappointing share price performance. It sold or spun off its construction and house-building units, as well as a huge property portfolio and exhibition arenas in central London. P&O has also greatly reduced its interest in cargo shipping. 
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