This morning Norwegian Cruise Lines announced it was purchasing Prestige Cruise Holdings, owner of Regent Seven Seas Cruises and Oceania Cruises for US$3.025 billion dollars including both cash and debt with another $50 million payable to Prestige’s shareholders if certain performance targets are met in 2015.
What does it mean from a luxury cruise perspective?
Before getting to the analysis, you need to understand that NCL is partially owned (20%) by the Apollo Management, who were the owners of Prestige Cruise Holdings, so there is a bit of “shuffling of the deck chairs” so to speak.
You also need to know that NCL, under the guidance of Kevin Sheehan, has risen from the brink, but still has its struggles. (The Norwegian Epic is a disaster of a ship, the Caribbean cruise market can’t sustain the pricing the cruise lines need, and NCL has a number of ships on order, among other things.)
I also want to point out that with all of the bluster coming out of Regent Seven Seas and Oceania Cruises, the fact is that Apollo Management is doing exactly what it planned from the beginning: Build up and then sell off assets at a profit (and jettisoning the burden of financing and building a new ship).
Using its leverage to have its assets acquired by acquired another of its assets (NCL which has a market value of about $6.8 billion dollars) is a pretty smart move for Apollo -as it only owns 20% of NCL, but I am not so sure it makes great financial sense for NCL.
As you know I predicted and then watched Oceania pretty much consume Regent (albeit, admittedly, Oceania has not totally combined with Regent). See for example my June 2008 article: The Oceania-fication of Regent Seven Seas Cruises Line and my March 2012 article: Oceania Cruises New, Creative, All-Inclusive Approach (TheOceania-fication of Regent Seven Seas Cruise Line – Another Chapter). Meanwhile I have watched Oceania improve its food quality (I can call it “cuisine”) while Regent Seven Seas has struggled in that area, the crew from each line crossover and Regent struggles to profit while garnering the highest prices in the cruise industry as it provides a premium (not luxury) product through slick marketing and unfulfilled promises to its passengers (and recently failed a CDC ship inspection). See, for example, its poor customer service and paying off travel agents with higher commissions just to get you to book a Regent Seven Seas cruise.
I have to wonder how NCL, and Kevin Sheehan (who is a pretty straight shooter!) will deal with Regent’s false marketing that it is actually less expensive than say Celebrity or Holland America. I have written about this a few times. For example: Regent Seven Seas vs. Holland America – Really? Let’s TalkEthics and Regent Seven Seas Pricing – It Is Out of Control…Seriously, Why Pay That Much?
Oceania Cruises, on the other hand, while a bit weak on customer service before you board, is a strong product with great itineraries though to me it is a bit over-the-top with its extra charges. I honestly consider it to be a superior product to Regent on many levels…and that may be the attraction!
Now, let’s get down to finances. I wrote just two weeks ago Regent Seven Seas Cruises – Reported Earnings for SecondQuarter 2014: A Lesson In Making the Bad Seem Good…which makes that $50,000,000 performance bonus seem like I hit the nail on the head. In other words, Regent is not doing well.
When this is combined with NCL doing better, though not necessarily well, I then look at the points NCL and Prestige Cruise Holdings highlighted in their joint announcement (their words, not mine):
