Princess seeking penalty guarantee

CRUISE group P&O Princess is holding out for two key improvements in an outline takeover offer from Carnival Corporation before it will consider backing out of a merger deal with Royal Caribbean.

P&O and American line Royal Caribbean announced a month ago that they wanted to link up, creating a single £4.2bn company with 41 ships. But last week Carnival, whose dominance of the world's cruise markets would be challenged by the newly merged group, muscled in. It said it was prepared to bid £3.2bn for UK-based P&O Princess.

Carnival's offer has been rejected by P&O Princess, which said a deal with Royal Caribbean would be less likely to fall foul of competition watchdogs on both sides of the Atlantic. But P&O Princess, created as a separate operation last year, has indicated it would consider a new Carnival offer - on two conditions.

It wants to see a better offer than the 456p a share suggested by Carnival. It is also seeking a guarantee that if a takeover is blocked by competition authorities, P&O Princess shareholders will still see some benefit. P&O Princess wants Carnival to guarantee a payment if the takeover fails.

Peter Ratcliffe, chief executive of P&O Princess, said of the Royal Caribbean plan: 'We can't solicit a better deal, but there is a recognition to ensure that this is maximising shareholder value.'

Analysts said P&O would be hard-pressed to refuse talks if Carnival were to slap a bid of 550p a share on the table and top it off with a 'penalty guarantee' of about £100m.

Carnival is led by Mickey Arison, the son of the man who founded the business with a ship bought for only $1. He is regarded as the most efficient operator in the sector.

Mark McVicar, transport analyst at Dresdner Kleinwort, said Arison could probably extract cost savings of more than £200m a year.

Carnival has until 18 January to come up with a new and firm offer. Unless the offer is good enough to tempt P&O Princess, the company's shareholders will be asked to vote on the Royal Caribbean tie-up in mid-February.