Filing under Rule 425 under
the Securities Act of 1933
and deemed filed under Rule 14d-2
of the Securities Exchange Act of 1934
Filing by: Carnival Corporation
Subject Company: P&O Princess Cruises plc.
SEC File No. of Princess: 001-15136
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO
AUSTRALIA, CANADA OR JAPAN
8 January 2002
CARNIVAL CORPORATION
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LETTER TO THE BOARD OF P&O PRINCESS CRUISES PLC
On 6 January 2002, Carnival sent the following letter to the board of P&O
Princess, requesting a meeting with P&O Princess and its advisors. This request
having been declined, Carnival now considers that its letter should be made
public, and encourages P&O Princess Shareholders to urge their board to
reconsider Carnival's request for a meeting, in the interests of maximising
shareholder value.
ENQUIRIES:
CARNIVAL Telephone: +1 305 599 2600
Micky Arison
Howard Frank
MERRILL LYNCH Telephone: +44 20 7628 1000
Philip Yates
James Agnew
Stuart Faulkner
UBS WARBURG Telephone: +44 20 7567 8000
Tom Cooper
Alistair Defriez
FINANCIAL DYNAMICS Telephone: +44 20 7831 3113
Nic Bennett
Scott Fulton
Terms used in this announcement have the same meaning as in the Announcement
dated 16 December 2001.
The directors of Carnival accept responsibility for the information contained in
this announcement. To the best of the knowledge and belief of the directors of
Carnival (who have taken all reasonable care to ensure such is the case), the
information contained herein for which they accept responsibility is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
Merrill Lynch International and UBS Warburg Ltd., a subsidiary of UBS AG, are
acting as joint financial advisors and joint corporate brokers exclusively to
Carnival and no-one else in connection with the Offer and will not be
responsible to anyone other than Carnival for providing the protections afforded
to clients respectively of Merrill Lynch International and UBS Warburg Ltd. as
the case may be or for providing advice in relation to the Offer.
SHAREHOLDER DISCLOSURE OBLIGATIONS
Any person who, alone or acting together with any other person(s) pursuant to an
agreement or understanding (whether formal or informal) to acquire or control
securities of P&O Princess or Carnival, owns or controls, or become the owner or
controller, directly or indirectly of one per cent. or more of any class of
securities of P&O Princess or Carnival is generally required under the provision
of Rule 8 of the City Code to notify the London Stock Exchange and the Panel of
every dealing in such securities during the period from the date of this
Announcement until the first closing date of the Offer or, if later, the date on
which the Offer becomes, or is declared, unconditional as to acceptances or
lapses.
Disclosure should be made on an appropriate form before 12 noon (London time) on
the business day following the date of the dealing transaction. These
disclosures should be sent to the Company Announcements Office of the London
Stock Exchange (fax number: +44 20 7588 6057) and to the Panel (fax number: +44
20 7256 9386).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this announcement constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Carnival has tried, wherever possible, to identify such statements by using
words such as "anticipate," "assume," "believe," "expect," "intend," "plan" and
words and terms of similar substance in connection with any discussion of future
operating or financial performance. These forward-looking statements, including
those which may impact the forecasting of Carnival's net revenue yields, booking
levels, price, occupancy or business prospects, involve known and unknown risks,
uncertainties and other factors, which may cause Carnival's actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions which may impact levels of disposable income of
consumers and the net revenue yields for Carnival's cruise products; consumer
demand for cruises and other vacation options; other vacation industry
competition; effects on consumer demand of armed conflicts, political
instability, terrorism, the availability of air service and adverse media
publicity; increases in cruise industry and vacation industry capacity;
continued availability of attractive port destinations; changes in tax laws and
regulations; Carnival's ability to implement its shipbuilding program and to
continue to expand its business outside the North American market; Carnival's
ability to attract and retain shipboard crew; changes in foreign currency rates,
security expenses, food, fuel, insurance and commodity prices and interest
rates; delivery of new ships on schedule and at the contracted prices; weather
patterns; unscheduled ship repairs and dry-docking; incidents involving cruise
ships; impact of pending or threatened litigation; and changes in laws and
regulations applicable to Carnival.
Carnival cautions the reader that these risks may not be exhaustive. Carnival
operates in a continually changing business environment, and new risks emerge
from time to time. Carnival cannot predict such risks nor can it assess the
impact, if any, of such risks on its business or the extent to which any risk,
or combination of risks may cause actual results to differ from those projected
in any forward-looking statements. Accordingly, forward-looking statements
should not be relied upon as a prediction of actual results. Carnival undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
CARNIVAL PLANS TO FILE A REGISTRATION STATEMENT ON FORM S-4 AND A STATEMENT ON
SCHEDULE TO WITH THE US SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH
THE OFFER. THE FORM S-4 WILL CONTAIN A PROSPECTUS AND OTHER DOCUMENTS RELATING
TO THE OFFER. CARNIVAL PLANS TO MAIL THE PROSPECTUS CONTAINED IN THE FORM S-4 TO
SHAREHOLDERS OF P&O PRINCESS WHEN THE FORM S-4 IS FILED WITH THE SEC. THE FORM
S-4, THE PROSPECTUS AND THE SCHEDULE TO WILL CONTAIN IMPORTANT INFORMATION ABOUT
CARNIVAL, P&O PRINCESS, THE OFFER AND RELATED MATTERS. INVESTORS AND
STOCKHOLDERS SHOULD READ THE FORM S-4, THE PROSPECTUS, THE SCHEDULE TO AND THE
OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE OFFER CAREFULLY BEFORE
THEY MAKE ANY DECISION WITH RESPECT TO THE OFFER. THE FORM S-4, THE PROSPECTUS,
THE SCHEDULE TO AND ALL OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH
THE OFFER WILL BE AVAILABLE WHEN FILED FREE OF CHARGE AT THE SEC'S WEB SITE, AT
WWW.SEC.GOV. IN ADDITION, THE PROSPECTUS AND ALL OTHER DOCUMENTS FILED WITH THE
SEC IN CONNECTION WITH THE OFFER WILL BE MADE AVAILABLE TO INVESTORS FREE OF
CHARGE BY WRITING TO TIM GALLAGHER AT CARNIVAL CORPORATION, CARNIVAL PLACE, 3655
N.W. 87 AVENUE, MIAMI, FLORIDA, 33178-2428, US.
IN ADDITION TO THE FORM S-4, PROSPECTUS, THE SCHEDULE TO AND THE OTHER DOCUMENTS
FILED WITH THE SEC IN CONNECTION WITH THE OFFER, CARNIVAL IS OBLIGATED TO FILE
ANNUAL, QUARTERLY AND SPECIAL REPORTS, PROXY STATEMENTS AND OTHER INFORMATION
WITH THE SEC. PERSONS MAY READ AND COPY ANY REPORTS, STATEMENTS AND OTHER
INFORMATION FILED WITH THE SEC AT THE SEC'S PUBLIC REFERENCE ROOM AT 450 FIFTH
STREET, N.W., WASHINGTON, D.C. 20549. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR
FURTHER INFORMATION ON THE PUBLIC REFERENCE ROOM. FILINGS WITH THE SEC ALSO ARE
AVAILABLE TO THE PUBLIC FROM COMMERCIAL DOCUMENT-RETRIEVAL SERVICES AND AT THE
WEB SITE MAINTAINED BY THE SEC AT WWW.SEC.GOV.
Carnival Corporation
Carnival Place
3655 N.W. 87 Avenue
Miami, Florida 33178-2428
United States
The Board of Directors
P&O Princess Cruises plc
77 New Oxford Street
London WC1A 1PP
United Kingdom
6 January 2002
For the attention of Lord Sterling of Plaistow and Mr. Peter Ratcliffe
Dear Sirs,
We are writing to you following our review of the P&O Princess shareholder
circular and associated documents. While certain issues concerning your
agreements with Royal Caribbean were clarified in these documents, we still have
a number of important questions.
We continue to feel strongly that a meeting with you to understand these matters
would better enable us to improve still further our already superior offer to
P&O Princess shareholders. Having reviewed your documents, we believe that you
are free to meet us without triggering the break fee or any other adverse
consequences.
SUPERIOR OFFER
In your letter to shareholders of 19 December 2001, you highlight your board's
concerns that our offer is not as favourable financially and faces greater
execution risk than the Royal Caribbean proposal.
We continue to believe that our offer is a superior proposal to the Royal
Caribbean proposal and is a credible, deliverable and more valuable transaction
for your shareholders.
o Financial terms - our premium offer is clearly a superior proposal for
your shareholders
o Premium - Carnival's offer is valued at:
- a 48 per cent. premium to the P&O Princess share
price immediately before the announcement of the
Royal Caribbean "nil-premium" proposal; and
- a 27 per cent. premium to the P&O Princess share
price immediately after the announcement of the Royal
Caribbean proposal (i.e. it is at a significant
premium to the value that the market placed on the
Royal Caribbean proposal, in the knowledge of the
$100 million synergies and other potential upsides).
o Cash element - Carnival's offer contains a certain cash
element of 200p per share.
o Deliverability
o Regulatory - We firmly believe, and we have been so advised,
that there is no material difference between the regulatory
conditions attaching to our offer and the Royal Caribbean
proposal. We have also been advised that there will be no
adverse impact on the regulatory outcome as a result of the
two proposals being reviewed simultaneously. Indeed, we
understand that the FTC has started an investigation of the
Royal Caribbean proposal involving the same lawyers and
economists who are investigating our proposal, and we believe
that both investigations will involve the same data and be
conducted under the same legal standards and on essentially
the same timetable. Accordingly, both transactions will be
subject to the same analysis and raise the same substantive
legal issues, if any. You
have publicly recognised that the definition of the
appropriate market in which to evaluate the competitive
effects of either transaction is the wider vacation market and
on that basis it follows that both our offer and the Royal
Caribbean proposal face the same antitrust issues.
Accordingly, both transactions are likely to be approved by
all relevant antitrust authorities. If you would find it
helpful, our antitrust advisors would be prepared to meet with
you and your antitrust advisors to discuss our analysis in
detail.
o Financing - We currently have cash and existing undrawn debt facilities
of over $2.4 billion, more than sufficient to satisfy the cash element
of our offer. Given the probable regulatory timetable for both
proposals, and with the consent of the Takeover Panel, we have not put
formal acquisition financing facilities in place at the present time to
avoid unnecessary expense.
o Other conditions - You have mentioned that our offer contains several
conditions, and as such does not have the same level of deliverability
as the Royal Caribbean proposal. However, our review of the documents
indicates that the Royal Caribbean proposal has a similar level of
conditionality as our offer. The documents show completion is dependent
on the satisfaction of 15 conditions, including regulatory approvals
from the United States, the United Kingdom and Germany, and you have
admitted that there is no assurance that these conditions will be
satisfied.
Given the above, we continue to believe that our offer is clearly a superior
proposal to the Royal Caribbean proposal.
P&O PRINCESS' ABILITY TO NEGOTIATE
Given our superior proposal, we believe that you are free to enter into
discussions with us without triggering the break fee or any other adverse
consequences for your shareholders. We firmly believe that P&O Princess and its
shareholders have nothing to lose, and everything to gain, by your talking to us
right now.
P&O PRINCESS' TIMETABLE / ADJOURNMENT OF EGM
Your agreement with Royal Caribbean permits the EGM to be adjourned without
adverse consequences for P&O Princess, provided that the EGM is held before 16
November 2002. Therefore, we strongly believe that the EGM should be adjourned
until the antitrust review of both the Carnival and Royal Caribbean proposals
has been completed. This would allow your shareholders to judge our offer and
the Royal Caribbean proposal at the same time on their economic and strategic
merits, when the regulatory conditionality has been removed from both.
STRUCTURAL ALTERNATIVES
We are still open to exploring alternative transaction structures with you,
including some form of dual listed structure, if you believe that this would be
more attractive to your shareholders. Such a structure would enable P&O Princess
to retain all of the perceived benefits of the proposed DLC structure with Royal
Caribbean, whilst allowing your shareholders to benefit from our premium offer,
our stronger financial position and our superior operating margins.
CLARIFICATION OF THE DOCUMENTS
Having now had the opportunity to review the documents, there are a number of
areas where clarification is required:
o It seems to us, after reviewing the documents, that the cost to exit
the joint venture through the "put" could range from approximately $388
million to $484 million, even though we believe P&O Princess has
currently invested only $5 million. Together with the $62.5 million
break fee these costs represent a total of $450.5 million to $546.5
million. We have set out in the Appendix to this letter an analysis of
how this range is derived as well as a list of issues on which we would
like further clarity. Do you agree with the analysis set out in the
Appendix, as clearly the level of these costs goes to the heart of
Carnival being able to offer more value to your shareholders?
o Please could you confirm that P&O Princess, having exited from the
joint venture through the "put", would not be required to provide a
financial guarantee of the debt of the joint venture vehicle on an
ongoing basis? If P&O Princess were required to provide such a
guarantee, this could amount to an additional liability of up to $500
million, assuming a joint venture net debt balance of $1 billion.
o From press and analyst commentary, apparently guided by you, there
appears to be a belief that there is a way in which the joint venture
can terminate, at no cost to either party, in January 2003. Please let
us know how commercially you consider this could be achieved. Have you
been advised that P&O Princess is free not to accept reservations so
that the benchmarks are not met, and may then terminate the joint
venture without liability?
o There are a number of other issues where we would appreciate further
clarification, including (i) the reasons for the unprecedented $150
million writedown to the value of contracts for ships under
construction, (ii) further details on the tax liability of Euro 141
million due to the Italian tax authorities, (iii) the impact of any
change of control on the payments to be made to Horst Rahe, a P&O
Princess director, under the AIDA agreement (we understand that the
payment to Horst Rahe could be as high as Euro 200 million) and (iv) a
breakdown of the merger costs of $65 million, including details as to
what level of those costs are payable if the Royal Caribbean proposal
does not succeed.
CONCLUSION
I genuinely believe that our offer is a superior proposal and that a meeting to
discuss our offer further can only be in the best interests of P&O Princess and
its shareholders. We are particularly keen to discuss with you the effects of
the exit provisions of the joint venture to enable us to offer additional value
and certainty to your shareholders.
Furthermore, we continue to believe that the best course of action would be for
the EGM, currently scheduled for 14 February 2002, to be adjourned for a
sufficient period of time so that shareholders are given the chance to consider
both proposals together after the regulatory process has been completed.
The issues raised in this letter are substantial and require immediate
clarification and, therefore, we have instructed our advisors to call your
advisors to arrange a meeting to discuss these matters.
I would like to reiterate just how serious we are about our offer and I am
optimistic that, given goodwill on both sides, we can improve Carnival's offer
to the benefit of your shareholders.
Yours faithfully
/s/ M. Arison
M. Arison
Chairman and CEO
APPENDIX
Set out below is an analysis of how the range of $388 million to $484 million
referred to above is calculated, and a list of issues on which we would like
further clarification regarding the cost of exiting the joint venture upon a
Change of Control via the "Right to Put shares" mechanism. For the purposes of
this analysis only, it has been assumed that the joint venture agreement is
valid and enforceable.
o The analysis estimates that the face value of the Preferred Stock or
share Purchase Notes (the "Notes") to be issued as consideration in
exchange for the $500 million Initial shareholder Capital will be
calculated as 50 per cent. of the fair market value of equity less 10%
per cent. of the Company Enterprise Value.
o The analysis estimates a Company Enterprise Value of $2 billion,
consisting of a fair market value of equity of $1 billion and net debt
of $1 billion.
o What is your assessment of the fair market value of equity and Company
Enterprise Value for the purposes of calculating the Put share Amount?
o On the basis of this analysis, the Notes received would have a face
value of $300 million, being 50% of $1 billion, less $200 million (10%
of $2 billion). Do you agree with this analysis of the face value of
the Notes?
o In calculating the present value of the Notes the analysis assumes that
they will pay dividends or bear interest of 5% cash per annum.
o On the basis of this analysis, assuming a face value of the Notes of
$300 million and using a range of appropriate discount rates of 15% to
20% (as this is a deeply subordinated and significantly sub-investment
grade credit, for which repayment is not certain) this gives a present
value of Notes of $112 million to $81 million.
o Clearly, this valuation methodology is highly sensitive to the
dividends or interest paid. Please could you confirm that the Notes
will pay dividends or interest at 5% cash per annum?
o Were the dividends not to be paid each year, but instead accumulated
and paid at the end of the 20 year period, the present value of the
Notes, assuming the same discount rate of 15% to 20%, would be $37
million to $16 million.
In conclusion, on the basis of the analysis set out above, the approximate cost
of exiting the joint venture, excluding the potential impact of the financial
guarantee, under the "Put" mechanism is between $388 and $484 million,
consisting of the $200 million Company Enterprise Value reduction and a
difference of $188 million to $284 million between the fair present value and
the face value of the Notes. Do you agree with this conclusion?