Princess offer raised to £3.5bn

US cruise giant Carnival has raised its bid for P&O Princess by 11% to £3.5bn or 500p a share and fired off a tax broadside in an attempt to sink its planned merger with Royal Caribbean.

Carnival said the Royal deal was flawed because the new holding company would face massive tax charges under US law. Carnival claims advisers failed to identify the risk because they had 'misquoted' a key provision in legislation.

Princess denied the claims, saying its tax advisers, KPMG, had confirmed their advice on the planned dual-listing with Royal. It said it would respond to Carnival's increased offer in due course.

World number one operator Carnival said the offer - 250p cash and shares - is dependent on Princess being able to pull out of a controversial joint venture with Royal in 2003 'without cost or liability'. Princess's deal has been condemned as a 'poison pill' likely to cost any potential bidder up to £400m to unwind.

Shareholders, due to vote on the Royal deal on 14 February, are now likely to adjourn the meeting to consider both offers. Financial Spreads is forecasting that Princess will open at 430p to 435p after closing at 409p (down 2p) before Carnival tabled the new bid, worth 50p more.