2001 Maritime

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November 20, 2001

Princess and RCL to merge
P&O Princess Cruises plc and Royal Caribbean Cruises Ltd. have agreed to what's described as a "merger of equals under a dual listed company structure."

The combination will be achieved through a dual listed company ("DLC") structure. Existing P&O Princess shareholders will, in aggregate, have economic ownership of 50.7% of the combined entity and existing Royal Caribbean shareholders will, in aggregate, have economic ownership of 49.3% of the combined entity. No shareholders in either company will need to exchange or tender their shares in order to effect the combination.

Contractual arrangements between the two companies will ensure that distributions of both income and capital to shareholders take place in a "fixed equalization ratio," subject to adjustment for certain events, which reflects the respective economic interest of the shareholders in the combined group.

Under the terms of the combination, an existing Royal Caribbean share will have an economic interest equivalent to 3.46386 existing P7O Princess shares.

Following completion, the combined group will be managed on a unified basis and in effect will have a single board, as the composition of the boards of Royal Caribbean and P&O Princess will be identical. Initially, the boards will comprise twelve directors, half of which will be nominated by P&O Princess and half by Royal Caribbean.

JOINT VENTURE As an initial step , the two companies have entered into a 50%/50% joint venture agreement that will become effective immediately. The joint venture company will target customers in southern Europe. It is expected to commence cruise operations in 2003, deploying four new ships, with two contributed by Royal Caribbean and two by P&O Princess. The four new ships are currently on order and are scheduled for delivery in 2003 and 2004. The joint venture will have an asset base, after delivery of the initial four ships, in excess of $2 billion. Initial equity commitments of $1 billion will be made to the joint venture on a 50/50 basis by P&O Princess and Royal Caribbean. The remaining capital requirements will be debt financed. The joint venture will provide a product tailored for southern European customers, primarily from Italy, France and Spain.

The combined entity will be managed as a single, unified business with principal corporate headquarters in Miami and a significant corporate office in London. The combination is being effected based on current market capitalizations, resulting in Royal Caribbean representing 49.3% of the equity value of the combined group and P&O Princess representing 50.7% of the equity value of the combined group.

Completion of the transaction is expected to take place, subject to shareholder and regulatory approvals, in the second quarter of 2002. Royal Caribbean has agreed to use its reasonable best efforts to deliver shareholder voting agreements representing at least 44.5% of the voting control of Royal Caribbean on or before December 3. 2001. But getting some of these agreements may be dependent on Norwegian shareholders obtaining "satisfactory comfort with respect to the Norwegian tax treatment of the transaction." If these voting agreements have not been delivered by December 3, P&O Princess has the right to terminate all agreements related to the combination.

The combination has an aggregate market capitalization of about $6.0 billion as at November 19, 2001 with aggregate revenues of over $5 billion in the 12 months to September 30, 2001. It has a current combined fleet of 41 ships and some 75,000 berths and carried around 3 million passengers last year under its various brands, including Royal Caribbean, Princess, Celebrity,P&O Cruises, Swan Hellenic, AIDA and A'ROSA.

A further 14 ships are on order for delivery over the next three years, offering over 30,000 additional berths.

The combination has the youngest fleet of the major cruise companies with an average age of six years. It also has the largest ships, with an average of over 1,800 berths.

The merger will produce estimated annualized operational synergies of better than $100 million. The additional savings are expected to come primarily from marketing efficiencies, improved purchasing, rationalizing offices in various locations, reduced information systems costs and combining Alaska tour operations. One-time cash costs of integration are expected to be less than half the level of the annualized savings.

The combined group is to be renamed on completion with the corporate entities of P7O Princess and Royal Caribbean each taking the new group name.

Richard D. Fain, chairman and CEO of Royal Caribbean is chairman and CEO designate of the combined group. He said the combination of the two companies "will maximize our ability to take advantage of the long-term potential of our industry."

"This deal," he continued,"brings together well known brands and the youngest fleet in the industry to create a strong customer offering that will drive future growth both in existing and new markets. It also brings near-term cost savings and increased efficiencies that will help us respond to any short term challenges while building a stronger group. I am confident that shareholders in both companies will see real value created as a result."

Peter Ratcliffe, CEO of P&O Princess Cruises is managing director and COO designate of the combined group. He commented that "our industry has sustainable long term growth characteristics, despite the impact of recent events on short term trading."