Poison pill may choke P&O Princess

TWO words have been dogging cruise line boss Peter Ratcliffe - poison pill. As the managing director of P&O Princess fights this weekend to win shareholder support for a merger of his company with rival Royal Caribbean Cruises, representatives of big City investors are preparing to challenge his tactics.

Some of the UK cruise operator's biggest shareholders meet on Monday to discuss whether to clamp down on managements that try to do deals that become so expensive in the event of a takeover that their companies are effectively made bid-proof.

In short, poison pills are firmly on the agenda. And they are there because of P&O Princess. One of the leading investors planning to look at the issue at this week's gathering of the Association of British Insurers said: 'We don't like poison pills. They distort our flexibility and it is difficult to see why on earth they are necessary if the companies feel their merger is attractive.'

Another investor said P&O Princess's decision to install a poison pill could create such anger among its shareholders that it risks a No vote at the crucial meeting next month to seek support for the friendly merger with Royal Caribbean.

Unwittingly, the alacrity with which Ratcliffe, a cheery Mancunian, agreed to the poison pill device could play into the hands of his unwelcome suitors at US group Carnival, the world's biggest cruise operator. Carnival says it plans to mount a rival £3.2 billion bid for P&O Princess.

Carnival, headed by Micky Arison, has been keen for the Takeover Panel to become involved in the hope that it would outlaw the poison pill. So far, the Takeover Panel appears to regard P&O Princess's friendly merger with Royal Caribbean as beyond its jurisdiction.

But one of London's biggest institutional shareholders said: 'I'm not sure the Takeover Panel route has been fully exhausted. I wouldn't be surprised if the ABI decided we should lobby the panel.'

At all costs, the big British institutions want to avoid allowing P&O Princess and Royal Caribbean to set a precedent.

The shareholder said: 'We really would not want to see this. From time to time, these impediments to bids are imported from overseas but we have been pretty good at killing them off.'

Ratcliffe is keen to secure a tieup with Royal Caribbean. The companies rank second and third in the global cruise industry and they believe a merger would save at least £70 million a year - as well as creating an operation with the muscle to square up to Carnival.

P&O Princess has rejected Carnival's approach. Ratcliffe said the offer, worth about 450p a share, was not enough. But Carnival has successfully put P&O Princess on the defensive over the terms of a deal the British group struck with Royal Caribbean as part of the merger.

There is a $62 million 'break fee' to be paid if P&O Princess dumps Royal Caribbean in favour of another partner. That alone would cause little fuss.

Crucially, though, the two groups have created a joint venture serving southern Europe. This is where the poison pill is hidden. If P&O Princess walks away for whatever reason, it would sacrifice $200 million it has pledged to the joint venture.

On top of this, P&O Princess shareholders could face a further penalty because the company has guaranteed loans taken out by the joint venture. Some analysts suggest the final tally could top $500 million.

Ratcliffe insists that so long as P&O Princess does not change hands, the joint venture can be unwound with no cost in 2003. If Carnival waits until then, this socalled poison pill disappears. But P&O Princess can make a costfree exit only if the joint venture fails to hit certain targets for new business. These targets are easy to meet, insists Carnival.

'To miss them, P&O would virtually have to stop answering the phone,' said a source at the US giant. And if it did that, would Royal Caribbean then have a claim against P&O Princess for not having made an effort?

The tussle for P&O Princess started as a dispute over the future of the cruise industry. It is fast turning into an argument about just how poisonous poison pills really are.