Agents pleased by NCL buying Prestige Cruise

The cruise industry’s third multibrand company got a warm reception from travel agents after it was announced last week that Prestige Cruise Holdings would be acquired by Norwegian Cruise Line Holdings for $3.03 billion.

Agents said they were looking forward to opportunities to sell Norwegian customers on the two Prestige brands: Oceania Cruises and Regent Seven Seas Cruises.

However, some were less enthusiastic about moving clients in the other direction — i.e., selling Norwegian to upscale premium and luxury clients.

“My Oceania clients are very happy with that product,” said Deborah Waggoner, an agent at Preferred Travel of Naples, in Naples, Fla. “I’m not sure I can [even] move my Oceania clients up to Regent,” she said.

The acquisition will create a company with 21 ships, 40,092 berths and pro forma annual revenue of more than $4 billion.

In a webinar for travel agents the day of the announcement, Andy Stuart, Norwegian’s executive vice president for global sales, and Prestige President Kunal Kamlani stressed that there were no plans to fold Oceania or Regent into Norwegian or to water down the two lines’ quality standards.

“The value of the company, the $3 billion, lies in the distinction of these brands and the loyalty of the customers and in the support for these brands from you, our travel partners,” Stuart said.

He said any changes resulting from the merger would take place behind the scenes and would be invisible to guests.

Norwegian CEO Kevin Sheehan said the deal, expected to close in the fourth quarter, should immediately result in $25 million in combined savings, as the two companies consolidate purchasing, recruiting, finance, maintenance and other back-of-the-house functions.

Many Wall Street analysts said that number is conservative and view it as a starting point.

“They’re going to do what cruise lines that merge do,” predicted Peter Whelpton, an industry consultant in Gainesville, Fla. “They’ll go through, department by department, looking for savings. The only thing I would say is, don’t make Oceania like Norwegian. If they take it over and put the NCL guys in there, I think they’re going to defeat their purpose.”

A driving force behind the deal was the interest of Apollo Global Management, a private equity firm that invested in Prestige in 2007 and in Norwegian in 2008 and now wants to return cash to its investors.

Earlier this year, Prestige filed to offer stock to the public, but the offering apparently didn’t gain traction. Having Norwegian buy Prestige is an alternate way for Apollo to monetize its gains.

The $3.03 billion purchase price includes cash, assumed debt and stock. Norwegian will issue 20.3 million new shares to Prestige shareholders as partial consideration. Sale of the shares is restricted until the end of 2015.

Prestige can also get another $50 million if certain financial targets are met next year.

Before the deal, Apollo owned a 57% stake in Prestige and a 20% share of Norwegian, although it controls Norwegian through the power granted it by other owners to appoint a majority of its 11-member board.

In comments on a teleconference, Sheehan said the deal produced tensions between himself and Prestige’s chairman, Frank Del Rio.

“We had our moments in the negotiating process,” Sheehan said. “But at the end of the day, we’ve shaken hands and are best buddies again.”

Del Rio, who turns 60 this month, is committed to staying on through 2015. “We’ll see what happens after 2015,” he said.

Leaders of several agent groups said both companies have respect for travel agents.

“All these organizations believe in and support the travel agency distribution channel, and we fully expect that will continue,” said John Lovell, president of Vacation.com.

Investors drove Norwegian Cruise Line Holdings’ stock up 11% on Sept. 2 when the deal was announced.

Matt Jacob, an analyst with ITG Investment Research in New York, said the deal would put Norwegian closer to the league of Carnival Corp. and Royal Caribbean Cruises Ltd.

“This gives them a little bit more clout, a little bit more size and scale and additional brands to work with,” Jacob said.

While Norwegian mainly sails in Europe, the Caribbean, Alaska and Hawaii, the Prestige brands have relations with some 330 ports worldwide.

“We believe the key underpinnings of the deal are geographic and customer diversity as well as economies of scale,” Susquehanna Financial analyst Rachael Rothman said.

While fall is traditionally a time for reviewing agency contracts, Kamlani said on the webinar that he didn’t foresee any changes to the 2015 commission structure as a result of the merger.

Stuart said how or whether to make benefits from each brand’s loyalty program accessible to other brands was one of the important items on a very long to-do list.

“We do not have an answer yet,” he said.