Norwegian's Sheehan delves into the implications of acquiring Prestige Cruises

Prestige Cruises' Frank Del Rio, left, will work closely with Norwegian's Kevin Sheehan, right, at least through 2015 Prestige Cruises' Frank Del Rio, left, will work closely with Norwegian's Kevin Sheehan, right, at least through 2015 Norwegian Cruise Line

Calling the Prestige Cruises International acquisition 'the most exciting point since my joining Norwegian,' ceo Kevin Sheehan said the deal further validates the strategy of strengthening the product and balance sheet following the company's highly successful IPO in January 2013.

The $3.025bn transaction consideration includes $1.8bn in equity, Sheehan told Seatrade Insider in an interview that touched on synergies, key management figures and what may happen with the two companies' Miami offices.

NCLH shares gained more than 11% on Tuesday after the deal was confirmed and closed at $36.99, up $3.68. Nearly 6.4m shares were traded, more than six-fold the average volume.

'This was a big deal for us,' Sheehan said of the acquisition, noting that some of his team has been with the company since well before he joined nearly seven years ago. It's another check in the box of Norwegian's path from 'good to great,' the Jim Collins philosophy Sheehan espouses.

'It was such an obvious transaction. It made a world of sense for Norwegian,' he said, adding that he wanted to do it five years ago but it would have been tough—partly because major shareholders Genting Hong Kong and TPG Viking were not in the Prestige business like Apollo Management, which has stakes in both companies.

Once Prestige made its S-1 filing in January this year, 'it looked so clear the company belonged with us,' Sheehan said.

Apollo probably gains more by selling Prestige than it would have by taking the holding company of Oceania Cruises and Regent Seven Seas Cruises public, analysts said.

Chairman and ceo Frank Del Rio will keep his role and is committed to staying at least through 2015. Sheehan hopes Del Rio's involvement will continue beyond that.

Meanwhile, they'll work closely together.

Sheehan noted their backgrounds are similar and their management approaches are different.

Both share modest, blue-collar backgrounds yet 'got to places where we were very successful. I got lucky. He was smart,' the Norwegian chief said, complimenting Del Rio.

'I'm like an animal, in the office all the time, driving people,' Sheehan added. 'I'm working harder than ever. He's more strategic.'

Sheehan views Prestige president and chief operating officer Kunal Kamlani as 'a good guy' he's 'very comfortable with, and we have good rapport,' along with Prestige cfo Jason Montague. And he praised Prestige vice chairman Bob Binder for 'a very good job of improving the international business for Prestige.'

It's too soon to tell if there will be any changes in senior management. However, at some future point it's likely each of the three brands will have its own president and Sheehan said he does not plan to continue filling that role at Norwegian in addition to his chief executive duties.

A key message of the day was the commitment to retaining the brand propositions, guest experience and cultures of the three lines.

As Sheehan put it: 'We have three different business models that all work really well. We don't want to change the guest experience or the experience for travel agents.'

That was stressed in a Norwegian agent webinar Tuesday afternoon led by evp Andy Stuart with Kamlani as special guest. Stuart said the companies are aligned in their 'passion for working with travel partners' and will look at sharing best practices where those make sense but that inside and outside sales forces will remain 'entirely distinct.' There are no plans to combine training or commission programs.

Kamlani told agents the acquisition presents a 'great opportunity for you to introduce your clients to our family of distinct brands' and that both Norwegian and Prestige believe agents have customers for all three lines in their databases.

One example of a 'massive opportunity' Kamlani identified is for agents to look at the affluent Regent and Oceania demographic, 95% couples at the top of a three-generation family who at least once a year want to sail with their children and grandchildren.

When that's the case, 'There's no reason these folks should be going on a cruise line other than Norwegian,' he said.

As far as what happens with the companies' two offices, 'We need the family together,' as Sheehan put it.

Norwegian occupies a pair of big buildings at Corporate Center Drive, while Prestige and its two brands have three floors nearby in Doral. There's not enough space to move everybody into the Norwegian headquarters, but it's possible management would relocate to Corporate Center Drive while some shared services would be grouped in Doral.

Norwegian has identified an immediate $25m in synergies from such areas as joint purchasing, port agreements and insurance, among many others, with more opportunities to be realized in the next several years. While expressing admiration for the Prestige team, Sheehan indicated during the investors' call there also may be opportunities in shoreside staffing.

'We're going to do this carefully. We will take the best players and the best thinking,' he said.

In a note, Wells Fargo Securities predicted more than $100m in possible cost synergies over the next several years along with refinancing savings beginning in 2015.

'The acquisition clearly makes sense,' Wells Fargo analyst Tim Conder said. It diversifies Norwegian's customer base, geographic exposure, booking patterns and economic sensitivities. It's accretive and it gives Apollo, which holds a chunk of NCL and a majority stake in Prestige, 'a means of exiting its entire Prestige holding yet remaining positioned to benefit from expected deal synergies.'

'This is a very smart strategic move,' according to former Norwegian senior executive Mitchell Schlesinger, president of MJS Consultants in Miami. 'It creates a much larger organization. It creates product diversity and it creates opportunity to cross-promote across three databases of guests.'

There are people who cruise on NCL who are obviously candidates for Oceania and Regent and, the other way around, upscale couples who cruise with Oceania and Regent who may consider NCL when taking the family, Schlesinger added.

'It makes all sorts of sense,' agreed Rod McLeod, veteran senior cruise line executive, who served as NCL president in 1986-87. He called the deal 'elegantly done' and said it moves Norwegian into a different bracket as a multi-brand entity. McLeod thinks there may be still one more piece—a major deal—to play out for the company.

This isn't the first time Norwegian has snapped up other brands. Royal Viking Line, Royal Cruise Line and Orient Lines come to mind. All are gone. But, as several industry sources pointed out, those acquisitions were long ago, under different management.

Today, though Norwegian's acquisition of Prestige is certainly a milestone, it doesn't reshape the cruise business.

After adding the eight ships of Oceania and Regent, Norwegian will remain the distant third of the Big Three operators even as its fleet swells to 21 ships and 41,000 beths. That compares to Royal Caribbean's 42 ships and just over 100,000 berths, and Carnival Corp. & plc's 100 ships and 203,000 berths.

'We're the little guy. We still pale beside the two big guys,' Sheehan said, adding the acquisition doesn't move the needle in capacity but, importantly, it broadens the portfolio and bolsters returns.

'We're so excited about this,' the Norwegian chief said, admitting it was an emotional day for him. 'It's a great deal for Norwegian, and a great deal for Prestige.'

 

 

Posted 02 September 2014

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Anne Kalosh

Editor, Seatrade Cruise News & Senior Associate Editor Seatrade Cruise Review