The Hostile Takeover That Almost Sank Royal Caribbean
In 1988, the cruise industry was a hotbed of ambition and intense rivalries. The biggest showdown was between two companies in positive growth mode: Carnival Cruise Line and Royal Caribbean Cruise Line. This wasn’t going to be a friendly merger; it was a high-stakes corporate battle that took place on yachts, in penthouses, and across continents.
The Arisons’ Ambition
Carnival, fresh off a successful IPO, was looking to expand. Their first choice was to acquire the upscale Holland America Line, but its owner, Nico Van Der Vorm, wasn’t interested as he just purchased Windstar Sail Cruises the year before. This left Royal Caribbean as an imperfect second choice for Carnival founder Ted Arison and his son Micky.
Meanwhile, Royal Caribbean was a company at the mercy of its disparate ownership. Since it’s founding in 1968, Royal Caribbean had been owned by three Norwegian families famous in the world of shipping: Wilhelmsen, Skaugen, and Gotaas-Larsen. The latter had been acquired by a Philadelphia holding company International Utilities (IU) in the late 1970’s. Eventually IU’s CEO, Jack Seabrook, wanted out. Seabrook approached Carnival Cruise Line’s CEO Ted Arison at a cocktail party for the inaugural sailing of Royal Caribbean’s Sovereign of the Seas, and made it clear he was a seller. The two began to hammer out a deal to sell Gotaas-Larsen’s third of the company to Carnival.
News of the potential deal sent shockwaves through the industry. The Norwegian partners, Arne Wilhelmsen and the Skaugen family, were blindsided. Their reaction to Carnival was overwhelmingly negative. They considered Carnival a lower-tier brand and often disparaged its ships. They believed Ted Arison was an industry outsider who had developed a negative reputation based on his actions towards the end of his involvement in Norwegian Caribbean Lines. The idea of turning their prestigious line, even a favorite of the King of Norway, over to Carnival seemed unthinkable.
The Right of First Refusal and the Ambush
The proposed transaction, and the way it was specifically worded and structured, appeared to circumvent a clause granting each partner the right of first refusal in any takeover. Carnival insisted it was not ‘buying’ Gotaas-Larsen’s ‘shares’, but instead the ‘Gotaas-Larsen subsidiary’ that owned those shares, a tactic designed to avoid activating that right of first refusal. This maneuvering, along with other red flags , raised serious concerns for the other Norwegian partners and stakeholders, who feared Ted Arison was simply using the offer as a ploy to throw the partnership into chaos.
The Skaugens and Wilhelmsens discussed buying out Gotaas-Larsen themselves, but their own animosity prevented them from reaching a quick resolution. Carnival’s announcement of the deal with Gotaas-Larsen essentially presented the partners with a classic prisoner’s dilemma. In a shock to the Wilhelmsens, the Skaugens broke off their negotiations, and signed papers with Carnival in New York. However, they did so on one crucial condition: the Wilhelmsens had to be “explicitly guaranteed the opportunity to exercise their right of first refusal with no further interference”. They were given 40 days to decide and 30 more to close the deal. This was not just a legal maneuver; it was an act of principle to protect their fellow countryman’s interests.
The Rise of a Hero: Richard Fain
While this was all unfolding, Royal Caribbean CEO Richard Fain found himself in a precarious position. He was a Gotaas-Larsen managing director splitting duties while serving as Royal Caribbean’s CEO. However, he was vehemently opposed to selling out to the Arisons. He was seen as a defector by the Norwegians and by his boss, Jack Seabrook. Micky Arison had no idea of this internal turmoil and assumed that Fain would be loyal to the Norwegians and make this deal happen.
Richard Fain felt his obligation was to Royal Caribbean and its shareholders first and foremost, not to the Carnival deal. He knew Royal Caribbean was at a point where it needed to spend money on new ships and not get saddled with the crushing debt of a leveraged buyout. This was one of the mechanisms the Wilhelmsens had seriously considered to keep the line independent.
In a pivotal moment, Wilhelmsen found a new partner in Jay Pritzker, a legendary name in American finance. Pritzker and his son Tom, who had built the Hyatt hotel empire, were intrigued by the cruise business. They liked the industry and had been considering a cruise investment earlier that year. Pritzker called Fain at home and asked him to come to Chicago to discuss the business. This was the chance Fain had been hoping for.
Fain flew to Chicago and gave a very impressive presentation to the Pritzkers on his vision for Royal Caribbean’s future. This act, however, was a direct violation of a ‘no-shop’ clause in Gotaas-Larsen’s deal with Carnival, which prohibited Fain from helping Wilhelmsen find a new partner.
A Race Against the Clock
With the Pritzkers on board, the race was on to complete the Royal/Carnival merger before Wilhelmsen’s deadline expired. The complex restructuring of the dozens of partnership agreements was now a matter of survival. Fain played his part as well and was able to stall Carnival’s due diligence requests and prioritized meeting Wilhelmsen’s needs.
On November 2, 1988, two days before the deadline, an epic meeting was held in London. Every square inch of a conference room was covered in papers and stock certificates. Lawyers and executives from Royal Caribbean, Wilhelmsen, and the Pritzker group, worked around the clock, dodging phone calls from Carnival’s attorneys who erroneously claimed they had lost and to give up, but they persisted and at 2:30 a.m. on November 3, everything was consolidated, agreed to, and signed.
There was one final hurdle, a wire transfer of $350 million from the Bank of Nova Scotia which mysteriously went missing. For several agonizing hours, the group waited as the bank’s computers were shut down for routine backup, with the deal hanging by a thread.
Finally, the money was located and transferred. The deal was done. The Wilhelmsens, now backed by the Pritzkers, had defied expectations and kept Royal Caribbean independent. Free from Carnival’s grasp, the company immediately embarked on expansion, ordering the Monarch and Majesty of the Seas to grow its Sovereign-Class fleet.