Norwegian Cruise Line Holdings Ltd., the third-largest U.S. cruise operator, agreed to acquire Prestige Cruises International Inc. in a deal valued at about $3.03 billion, gaining the owner of eight luxury vacation ships.
Norwegian will finance the purchase with cash, debt and about 20.3 million shares of common stock, according to a statement today. Those shares were valued at $670 million. Prestige is owned by private-equity firm Apollo Global Management LLC, which also has a 20 percent stake in Norwegian.
The deal gives Norwegian two brands, Oceania Cruises and Regent Seven Seas Cruises, which are marketed as high-end luxury vessels. Shares of Norwegian, which competes with Carnival Corp. and Royal Caribbean Cruises Ltd., have jumped more than 75 percent since its initial public offering in January 2013 through Aug. 29.
“They are complementary,” Stuart Gordon, an analyst with Berenberg Bank in London, said today in an interview. “There are not significant overlaps in the consumers they are targeting, which means there’s little chance of cannibalization in the brand.”
Prestige is standing out in the industry because it’s returning better than its cost on capital, he said. The sale to Norwegian is a higher value for Prestige than it would get in an IPO, said Gordon, who has a buy rating on Norwegian’s shares.
Miami-based Norwegian rose 11 percent to close at $36.99 in New York, its biggest one-day jump since the company’s first day of trading on Jan. 18, 2013.
The acquisition comes as the cruise industry tries to burnish its image and reassure passengers after incidents in the past two years including onboard illnesses, a fire on one of Carnival’s Triumph cruise ships and the wreck of the Costa Concordia vessel off the Italian coast in 2012.
Frank Del Rio will remain chief executive officer of Prestige. The company’s Oceania Cruises has five ships and operates cruises to more than 330 ports around the globe. Regent Seven Seas Cruises operates three all-suite ships and has another vessel on order for delivery by summer 2016.
The transaction is expected to be completed in the fourth quarter and is subject to regulatory approval. In addition, as much as $50 million will also be paid to Prestige shareholders upon meeting certain performance metrics.
The high-end segment of the cruise market is growing faster than the mid-priced portion and yields about $700 a customer per day, Norwegian’s Chief Executive Officer Kevin Sheehan said in a telephone interview. That’s more than three times the per-day revenue of Norwegian’s other ships.
“That’s all of these baby boomers passing 50 who want this upscale vacation and don’t want to have to deal with the baloney of paying for drinks and not being able to choose where they are eating,” he said.
Norwegian pioneered the concept of “freestyle” dining, where guests can pick where and when they want to eat, rather than sitting at assigned seats at designated times.
Sheehan said he expects Norwegian’s earnings to double over the next three years, in part because of the new ships. A total of five new vessels are scheduled through 2019, he said.