P&O Princess may have to sail this course alone

P&O Princess sails in ever muddier waters. First we had the proposal to merge Princess with rival cruise operator Royal Caribbean. Then came a bid with- strings from the big daddy of the industry, Carnival Cruises.

The Carnival approach met with a decidedly unenthusiastic reaction from Princess. So Carnival started muttering that Princess wasn't playing entirely fair because it had built a poison pill into its deal with Royal Caribbean that could make it hard (for which read expensive) for any third party to get a look-in.

Last week came the next episode, when Carnival raised the spectre of a possible tax bill for Princess and Royal Caribbean if their merger goes ahead. And Carnival lifted its outline bid for the British company to just over 500p a share, valuing Princess at about £3.5bn.

P&O, chaired by the veteran Lord Sterling and run by chief executive Peter Ratcliffe, is being scrupulously careful not to appear to be cold-shouldering Carnival. After all, the bid looks potentially attractive. Princess investors are being offered the chance of more than £5 apiece for their shares - shares that were changing hands for less than £2 each in the immediate aftermath of the 11 September attacks.

Surely, the Carnival offer is approaching the sort of area where P&O must take it very seriously? Well, up to a point, Lord Sterling. In truth, both proposals before Princess - a Royal Caribbean merger or a Carnival takeover - are exactly that: proposals.

Princess makes much of the fact that the merger idea has at least started weaving through the regulatory maze, whereas Carnival hasn't really started.

Furthermore, ask yourself a simple question - is a combination of two companies, one of which is the cruise industry's largest (Carnival), more or less likely to upset competition authorities than bringing together numbers two and three (Princess and Royal Caribbean)?

On the face of it, the Carnival idea is more likely to run on to the regulatory rocks. Isn't that a good enough reason for shareholders to back the merger? Wouldn't it be foolish to reject the merger in the uncertain hope that Carnival will eventually secure clearance and then hand over £5 or so a share?

This is true as far as it goes. Going with Carnival offers investors the prospect of virtually doubling their money since Princess split away from the old P&O empire 15 months ago. But there is a huge risk that this deal would never be consumated - even if Carnival is sincere in its wish to engineer a takeover rather than simply break up the cosy deal between Princess and Royal Caribbean.

This huge risk is enough to justify rejection of Carnival's overtures. So should Princess investors therefore simply hold tight and give their backing to the merger deal when they are asked to vote on the idea on 14 February?

It is not nearly that simple. In truth, both the merger and a takeover by Carnival are fraught with regulatory difficulties. It is very likely that both will fall foul of competition watchdogs. Princess may very well be forced to remain independent.

The struggle for Princess has lifted the company's share price to more than £4. For shareholders, it must be very tempting to sell.

Three cheers for brewer

CAST your mind back a year. The excruciatingly drawnout saga of a bid for Wolverhampton & Dudley Breweries was already well under way. Robert Breare, the man who started the ball rolling back in August 2000, declared that he was toying with the idea of a bid for the brewer. So did John Sands, blokeish head of Pubmaster. W&D's shares were changing hands at 479p.

The affair dragged on. And on and on. Last August, things finally came to a head: Breare was out of the running; Sands had seen his 513p a share bid fail by a whisker; W&D, headed by the tweedy David Thompson had survived. Oh dear, said those who had pushed for a takeover. With no bid to underpin the share price, Wolves investors would see the value of their holdings plummet.

They were wrong. At the end of last week, the shares were changing hands at around 620p, an increase of nearly 30% within 12 months.

It is heartening for those who kept faith with Wolves to have seen the value of their investments grow so strongly. (It also shows what rubbish some of Pubmaster's more aggressive advisers were talking when they predicted with such confidence that for the bid to fail would be a disaster for Wolves investors).

And it is heartening for Ralph Findlay, in charge of the day-to-day running of Wolves since Thompson became chairman. On Friday, Wolves will give shareholders news of its recent trading. The signs are that the news will be cheery.

Last summer, shareholders gave Wolves another opportunity to prove itself. So far, it appears to have grasped that opportunity.