Miami-based Norwegian Cruise Line Holdings announced plans Tuesday to acquire the parent company of Oceania Cruises and Regent Seven Seas Cruises for $3 billion.
The world’s third-largest cruise ship company is growing — and going upscale.
Miami-based Norwegian Cruise Line Holdings announced it has agreed to acquire Prestige Cruises International, the parent company of Oceania Cruises and luxury Regent Seven Seas Cruises.
Norwegian Cruise Line CEO Kevin Sheehan said the acquisition gives his company an opportunity to expand with two established — but distinct — brands that have built-in followings.
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“To me, there’s never been a better marriage,” he said during a conference call Tuesday morning.
Though the new three-brand Norwegian will still be significantly smaller than industry powerhouses Carnival Corp. and Royal Caribbean Cruises, it expects to boost its bottom line by adding ships that deliver high-end experiences with fares to match. Expected to close in the fourth quarter, the deal will add eight more ships to Norwegian’s existing fleet of 13, which caters to the broad market. Four more are on order between October of next year and fall of 2019. Oceania, with five ships that carry either 684 or 1,250 passengers, positions itself as an “upper premium” product with elegant furnishings and an emphasis on cuisine. Regent Seven Seas, which has three all-suite ships and one coming in 2016, is an all-inclusive luxury line.
“For Norwegian, this really gives them the opportunity to have a footprint in that upscale segment that they don’t have a footprint in,” said Morningstar equity analyst Jaime Katz. She said the company will also have access to affluent travelers who are “much less affected by economic cycles.”
Teijo Niemelä, editor and publisher of Cruise Business Review, said the move will also expand the new parent company’s global reach. Oceania and Regent both boast far-reaching global itineraries, while Norwegian operates mostly seven-day itineraries in the Caribbean, Europe and Hawaii.
“Norwegian before this merger was very dependent on the Caribbean and Europe. Now it’s less dependent on these markets,” he said. “The pricing has not been so good in the Caribbean so basically this helps Norwegian Cruise Line Holdings to be less dependent on any of the geographical markets or any of the segments.”
Sheehan, who joined Norwegian in 2007, said Prestige has “always” been on his radar as a potential partner. As the publicly traded company considered its growth prospects, Sheehan said the question of whether to establish a new brand or acquire an existing one came up.
“It turns out that the answer lay just down the street,” he said. Prestige is based in Doral, just west of Norwegian’s headquarters.
Even before the merger, the companies had an owner in common. Private equity firm Apollo Global Management owned about 20 percent of Norwegian as of the end of June, according to regulatory filings. Apollo is the majority owner of Prestige Cruises International, which filed papers to go public at the beginning of the year.
Norwegian said it will finance the acquisition with existing cash, new and existing debt and the issuance of approximately 20.3 million shares of its common stock.
Frank Del Rio, chairman and CEO of Prestige, said joining forces with Norwegian will enable the smaller cruise lines to better manage costs.
“We do some things very, very well, primarily the delivery of the product, the great onboard revenue, the venues that we operate,” he said. “On the cost side, quite frankly, we probably haven’t done that great a job simply because of our scale. That’s why this combination makes great sense.”
Del Rio, who was a founder of Oceania, said he has committed to oversee Oceania and Regent through the end of 2015.
“I feel like we’ve run the gamut,” he said during the conference call. “There isn’t a whole lot more to do. I turn 60 in two weeks and I’m glad to work side by side with Kevin and the entire team, but we’ll see what happens after 2015.”
Sheehan said he hopes to find a way to keep Del Rio involved even longer.
“I think it’s important that he watches his two babies,” he said.
Carolyn Spencer Brown, editor-in-chief of CruiseCritic.com, said fans of all three lines tend to be passionate about their preference. Those who are loyal to Oceania and Regent have expressed some concern on the site’s forums that the identity of the lines might change.
“I understand having that concern, but it seems to me to be completely unfounded,” she said. “These are very strong brands and the industry’s all about ‘niche-ing.’”
Sheehan said that while the companies will work out how to assign employees between the two offices and combine back-end operations, no parts of the business that affect the customer experience will change.
“That is the untouchable part of this equation,” he said.
Norwegian Cruise Line Holdings will still be the world’s third-largest cruise company — but with a lot more muscle. Here’s how the merged company shapes up compared to its closest competitors: Carnival Corp: 101 ships; 10 brands; 212,000 berths; $15.5 billion revenue in fiscal 2013
Royal Caribbean Cruises: 42 ships, six brands, about 100,000 berths; $8 billion revenue in 2013
Norwegian Cruise Line Holdings*: 21 ships, three brands, 40,952 berths; $3.8 billion annual revenue in 2013 *Combines Norwegian and Prestige figures