Carnival Makes Unsolicited Bid for Norwegian Cruise Line's Parent

Carnival said an NCL purchase is not expected to dilute 2000 earnings and in fact will add to 2001 earnings.
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Updated from 6:01 p.m. EST

In a surprising move,

Carnival

(CCL) - Get Report

, the world's biggest cruise line operator, made an unsolicited $1.7 billion bid for

NCL Holding ASA

(NRW)

, the operator of

Norwegian Cruise Line

.

If completed, the NCL acquisition would broaden the range of Carnival's customers.

Carnival offered NCL shareholders an all-cash tender offer of 30 Norwegian kroner per share, which it said represented a 40% premium over the company's 30-day average closing stock price and a 17% premium over NCL's closing price of 24.9 kroner on the Oslo stock exchange Wednesday. In addition, Carnival would maintain the NCL name, as it has with its other purchases. The tender expires on Dec. 22.

Based on current exchange rates, NCL's American depository shares, which represent four ordinary Norwegian shares, would be valued at about $14.85 apiece. The offer does not currently apply to the American depository shares, but it would be extended to them if Carnival acquires more than 40% of the outstanding stock of NCL.

Carnival, which is based in Miami, made its offer shortly before the stock market closed Wednesday. NCL's American depository shares soared 30% on the news, closing up 3 5/16 to 14 1/2. In after-hours trading, they rose another point, to 15 1/2, exceeding the value of Carnival's current offer.

Carnival's shares, meanwhile, closed up 3/4, or 2%, to 44 7/8.

NCL officials did not immediately return calls for comment, but

Reuters

reported that the company's management reacted negatively to the tender offer. Carnival executives are leaving the U.S. Thursday morning for NCL's Oslo headquarters to negotiate with NCL's management.

Carnival announced that an NCL purchase was not expected to dilute 2000 earnings and in fact would add to 2001 earnings.

"This makes sense from a strategic perspective," said Matthew Maillian, an analyst at

Raymond James

. "This will solidify Carnival's place in the high-end contemporary to low-end premium section of the market." All 10 of NCL's ships cater to that section, which appeals to a clientele that is usually more affluent than Carnival's. Maillian rates Carnival a buy and does not have a rating on NCL. His firm has not participated in underwriting for either company.

"The Carnival Corp. umbrella will provide NCL with economies of scale, greater access to capital, marketing and operating expertise and stronger credibility in the leisure and vacation industry," said Micky Arison, Carnival's chairman and chief executive, in a statement.

Oslo-based NCL, the fourth-largest cruise line in the world, is considered a second-tier operator. "It's less profitable than

Royal Caribbean

(RCL) - Get Report

, which is most similar in terms of market position and price points," Maillian explained.

He said Norwegian Cruise Line's cash flow and cruise operating margins are typically 8 to 10 percentage points below those of Royal Caribbean. Meanwhile, Royal Caribbean usually comes in 7 percentage points below Carnival. "There is a lot of room to improve profitability," Maillian said.

In fact, Carnival has a track record of buying underperforming operations and making those deals both accretive and workable. Take, for example, Carnival's purchase of the

Cunard Line

. Carnival acquired a majority 68% interest in the trouble cruise line for $500 million in May 1998. Carnival's purchase of Cunard's remaining 32% of shares in October was a sign that Carnival had completed the luxury line's turnaround.