Filing under Rule 425 under
the Securities Act of 1933
and deemed filed under Rule 14d-2
of the Securities Exchange Act of 1934
Filing by: Carnival Corporation
Subject Company: P&O Princess Cruises plc.
SEC File No. of Princess: 001-15136
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO
AUSTRALIA, CANADA OR JAPAN
17 January 2002
CARNIVAL CORPORATION
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LETTER TO THE BOARD OF P&O PRINCESS
Attached is the text of a letter sent today by Carnival to the board of
directors of P&O Princess.
"
17 January 2002
For the attention of Lord Sterling of Plaistow and Mr Peter Ratcliffe
Dear Sirs
INCREASED OFFER OF 500 PENCE PER P&O PRINCESS SHARE
I am writing to set out a proposal by Carnival Corporation to make a revised
offer for P&O Princess, which further improves the already superior offer to P&O
Princess shareholders made by us on 16 December 2001.
Subject to the terms of this letter, Carnival is prepared to make an improved
offer consisting of 250p in cash and 0.1380 Carnival shares per P&O Princess
ordinary share. The revised offer values each P&O Princess ordinary share at
500p(1) and values the entire existing ordinary share capital of P&O Princess at
approximately (pound)3.5 billion. This represents an increase of 12% over
Carnival's existing offer.
CONDITIONS PRECEDENT TO THE OFFER
Our willingness to improve our current offer is based on the assumption that P&O
Princess can ensure that the Joint Venture can be terminated in 2003 without
cost or liability, as you have indicated. We therefore continue to require
clarity as to how this will be achieved in practice.
We envisage that our offer will have the following principal conditions
precedent:
o the regulatory consents and related financing condition, as
per our previous proposal; and
o the Royal Caribbean Proposal not having been approved by P&O
Princess shareholders.
DELIVERABILITY
You have publicly recognised that the definition of the appropriate market in
which to evaluate the competitive effects of either transaction is the wider
vacation market and, on that basis, it follows that both our offer and the Royal
Caribbean Proposal face the same antitrust issues. We therefore firmly believe,
and have been so advised, that there is no material difference between the
regulatory conditions attached to our offer and the Royal Caribbean Proposal.
DLC TAX RISKS
We remain open to exploring with you the prospects of offering an alternative
structure to your shareholders which retains all of the perceived benefits of
the proposed DLC structure with Royal Caribbean.
However, having taken legal advice, we are concerned that the DLC structure
which you have proposed to your shareholders is defective. In analysing the DLC
structure proposed by yourselves and Royal Caribbean, our tax advisers believe
that there is a significant risk that the DLC structure will lose its Section
883 tax exemption for a significant portion of the combined companies' income,
and that the amounts involved would be material.
We note that the failure of P&O Princess and Royal Caribbean to identify this
tax risk may be attributable to the fact that the offering circulars issued by
both companies misquote the key provision of the proposed US tax regulation on
which they are explicitly relying. We attach, as an appendix, a memorandum from
our legal advisers describing this issue in greater detail.
NEXT STEPS
We firmly believe that our revised offer is a Superior Proposal to the Royal
Caribbean Proposal. In the absence of your prompt confirmation that our offer is
superior, we will be urging your shareholders to vote to adjourn the 14 February
2002 EGM or, failing such adjournment being achieved, to vote against the
existing DLC proposal with Royal Caribbean.
Yours faithfully
M. Arison
Chairman and CEO
1 Based on a Carnival share price of $26.06 (being the price at the close of
business on 16 January 2002) and an exchange rate of $1:(pound)0.695.
MEMORANDUM FROM PAUL, WEISS, RIFKIND, WHARTON & GARRISON
We have analyzed certain tax implications of the Dual Listed
Company ("DLC") transaction that P&O Princess Cruises ("Princess") and Royal
Caribbean Cruise Line ("RCCL") have recommended to their shareholders, and we
have compared our analysis to certain disclosures made in the offering circulars
released by each company. We conclude that each circular makes significant
misstatements and/or omissions concerning either (i) the likelihood that each
company will retain tax-exempt status; or (ii) the business risks associated
with maintaining that status if the proposed transaction is approved and
executed.
THE SPECIAL VOTING SHARE
The problems arise from the vehicle used to structure voting
rights within the DLC. Under the terms of the Implementation Agreement, both
RCCL and Princess must issue a Special Voting Share ("SVS"). Each company will
place its SVS in a Special Voting Company; the SVS will not be listed or traded
on any stock exchange. The purpose of each SVS is to create a special share that
will represent a significant portion of the voting power of either RCCL or
Princess, as applicable. Thus, the RCCL SVS holds 50.7% of RCCL's voting power,
and the Princess SVS holds 49.3% of Princess's voting power. As explained below,
the potential tax problems we have identified stem from the fact that the SVS is
not listed or traded on any stock exchange, while the applicable tax exemption
(under 26 U.S.C. ss. 883 ("Section 883")), as interpreted by the Internal
Revenue Service, requires that the company's stock be so listed and traded.
TAX ANALYSIS
A foreign corporation is exempt from United States federal
income tax on income derived from the international operation of ships if it (1)
is incorporated in a jurisdiction that provides an equivalent exemption to
United States corporations; and (2) meets one of three tests relating to its
shares or its shareholders. (26 U.S.C. ss.ss. 883(a)(1) and (c)) (the "Section
883 Tax
Exemption"). A foreign corporation meets the shareholder test if (i) more than
half of its share value is ultimately owned by individuals who reside in foreign
countries that afford equivalent exemption to U.S. corporations; (ii) its stock
is "primarily and regularly traded" on an established securities market in its
country of incorporation, another foreign country granting the "equivalent
exemption" described above, or the United States, or (iii) it is a "controlled
foreign corporation." (SEE 26 U.S.C. ss. 883(c).) Each of Princess and RCCL
relies on the "primarily and regularly traded" test to assert that it is
entitled to the Section 883 Tax Exemption. (1) SEE P&O Princess Cruises PLC
Proposed DLC Combination with Royal Caribbean Cruises Ltd. (the "Princess
Circular") at 19-20, and Royal Caribbean Cruises, Ltd. Dual-Listed Company
Merger Proposal (the "RCCL Circular") at 75 (with respect to RCCL); Princess
Circular at 66, and RCCL Circular at 89 (with respect to Princess); and Princess
Circular at 124-25, and RCCL Circular at 21-22 (asserting that the exemption
should continue to apply to each company under the DLC structure). The IRS has
proposed regulations under Section 883 pursuant to which a corporation's stock
would be deemed "regularly traded" if, among other things:
one or more classes of stock of the corporation
that, in the aggregate, represent 80 percent or
more of the total combined voting power of all
classes of stock of such corporation entitled
to vote and of the total value of the stock of
such corporation are listed on [a qualifying]
market or markets during the taxable year. See
65 F.R. 6065, 6081 (2000) (to be codified at 26
C.F.R. ss. 1.883-2(d)(1)(i)) (the "Proposed
Regulation") (emphasis added).
In other words, under the Proposed Regulation, a corporation may only claim the
Section 883 Tax Exemption under the "primarily and regularly traded" test if its
publicly traded stock represents at least eighty percent of BOTH the voting
power AND value of all classes of shares.
Although the Proposed Regulation has not yet been promulgated
as a final regulation, the industry anticipates that the definition of
"primarily and regularly traded" will be implemented substantially in its
current form. (2) More importantly, both Princess and RCCL rely on the Proposed
Regulation to conclude that each company will continue to enjoy the benefits of
the
Section 883 Tax Exemption even after the DLC structure is implemented. (SEE
Princess Circular at 124-25; RCCL Circular at 21-22.)
Princess's and RCCL's conclusions, however, appear to be based
on a misreading of the Proposed Regulation. Specifically, the Princess and RCCL
circulars state that a company may satisfy the "primarily and regularly traded"
test if eighty percent of the voting power OR value is publicly traded. (ID.) As
noted above, the Proposed Regulation requires that eighty per cent of voting
power AND value of all classes of stock must be represented by publicly traded
shares. (SEE 65 F.R. at 6081.) Yet well over 20% of the voting power of each
company will be vested in its SVS, which is not publicly traded. (3)
Accordingly, neither company will satisfy the "primarily and regularly traded"
test articulated in the Proposed Regulation, contrary to the statements made in
each circular.
Under the DLC structure proposed for the Princess and RCCL
combination, therefore, there is a substantial risk that neither company will
qualify for the Section 883 Tax Exemption. RCCL does not claim any other basis
for exemption from U.S. income tax. If the Section 883 Tax Exemption is lost,
the portion of RCCL's income that is treated as "U.S. source income" could be
subject to a combined federal tax rate of up to approximately 55% (I.E., the
combined rate for federal income and branch profits taxes), plus any applicable
state taxes. A 4% tax could also apply to the U.S. source portion of gross rents
paid on intercompany leases of ships within the RCCL Group. The Princess and
RCCL circulars fail to disclose the serious tax risk that the structure of the
proposed DLC transaction (in particular the SVS) creates.
It is true that Princess, a U.K. company, may rely on the
existing United Kingdom-United States Income Tax Treaty (the "Treaty") to claim
exemption from U.S. income tax even if the company fails to qualify under
Section 883. Significantly, however, subsidiaries of Princess that are not U.K.
entities are not entitled to the benefits of the Treaty, and thus must claim
exemption, if at all, under Section 883. (4) If Princess cannot rely on Section
883 for exemption from U.S. tax liability, its non-U.K. subsidiaries will not be
able to do so, either.
1 A corporation customarily explains the bases for claiming the Section
883 Tax Exemption in its disclosure documents. Neither Princess nor
RCCL has relied on the ownership test or the "controlled foreign
corporation" test to claim the Section 883 Tax Exemption in its
circular or in recent filings. Accordingly, we consider it unlikely
that either company could rely on these provisions to claim the Section
883 Tax Exemption if the "primarily and regularly traded" provision is
inapplicable.
2 Indeed, the proposed definition of "regularly traded" in this
regulation largely tracks the definition of "regularly traded" that has
been promulgated by the IRS in final regulations pursuant to 26 U.S.C.
ss. 884, which was enacted at the same time that Section 883 was
amended to include the "primarily and regularly traded" provision. See
26 C.F.R. ss. 1.884-5(d)(4).
3 The SVS votes, among other things, for the directors of its issuer (see
Princess Circular at 152-53 and RCCL Circular at 59-61), and thus would
be considered to hold "voting power" for federal income tax purposes.
(See, e.g., First Chicago NBD Corp. v. Commissioner, 135 F.3d 457, 461
(7th Cir. 1998) (the IRS's position, which is "generally accepted," is
that voting stock means stock that votes for the members of the board
of directors); Rev. Rul. 84-6, 1984-1 C.B. 178 ("the `voting power'
held by a shareholder of any class of stock is the shareholder's
proportionate share of the percentage of the total number of directors
that that class of stock is entitled to elect as a class.")
4 Conceivably, the non-U.K. subsidiaries could qualify for the benefits
of another tax treaty, but this seems unlikely for the reasons set
forth in footnote 1.
"
ENQUIRIES:
CARNIVAL Telephone: +1 305 599 2600
Micky Arison
Howard Frank
MERRILL LYNCH Telephone: +44 20 7628 1000
Philip Yates
James Agnew
Stuart Faulkner
UBS WARBURG Telephone: +44 20 7567 8000
Tom Cooper
Alistair Defriez
FINANCIAL DYNAMICS Telephone: +44 20 7831 3113
Nic Bennett
Scott Fulton
Terms used in this announcement have the same meaning as in the Announcement
dated 16 December 2001.
The directors of Carnival accept responsibility for the information contained in
this announcement. To the best of the knowledge and belief of the directors of
Carnival (who have taken all reasonable care to ensure such is the case), the
information contained herein for which they accept responsibility is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
Merrill Lynch International and UBS Warburg Ltd., a subsidiary of UBS AG, are
acting as joint financial advisors and joint corporate brokers exclusively to
Carnival and no-one else in connection with the Offer and will not be
responsible to anyone other than Carnival for providing the protections afforded
to clients respectively of Merrill Lynch International and UBS Warburg Ltd. as
the case may be or for providing advice in relation to the Offer.
SHAREHOLDER DISCLOSURE OBLIGATIONS
Any person who, alone or acting together with any other person(s) pursuant to an
agreement or understanding (whether formal or informal) to acquire or control
securities of P&O Princess or Carnival, owns or controls, or become the owner or
controller, directly or indirectly of one per cent. or more of any class of
securities of P&O Princess or Carnival is generally required under the provision
of Rule 8 of the City Code to notify the London Stock Exchange and the Panel of
every dealing in such securities during the period from the date of the
Announcement until the first closing date of the Offer or, if later, the date on
which the Offer becomes, or is declared, unconditional as to acceptances or
lapses.
Disclosure should be made on an appropriate form before 12 noon (London time) on
the business day following the date of the dealing transaction. These
disclosures should be sent to the Company Announcements Office of the London
Stock Exchange (fax number: +44 20 7588 6057) and to the Panel (fax number: +44
20 7256 9386).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this announcement constitute "forward-looking statements"
within the meaning of the US Private Securities Litigation Reform Act of 1995.
Carnival has tried, wherever possible, to identify such statements by using
words such as "anticipate," "assume," "believe," "expect," "intend," "plan" and
words and terms of similar substance in connection with any discussion of future
operating or financial performance. These forward-looking statements, including
those which may impact the forecasting of Carnival's net revenue yields, booking
levels, price, occupancy or business prospects, involve known and unknown risks,
uncertainties and other factors, which may cause Carnival's actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions which may impact levels of disposable income of
consumers and the net revenue yields for Carnival's cruise products; consumer
demand for cruises and other vacation options; other vacation industry
competition; effects on consumer demand of armed conflicts, political
instability, terrorism, the availability of air service and adverse media
publicity; increases in cruise industry and vacation industry capacity;
continued availability of attractive port destinations; changes in tax laws and
regulations; Carnival's ability to implement its shipbuilding program and to
continue to expand its business outside the North American market; Carnival's
ability to attract and retain shipboard crew; changes in foreign currency rates,
security expenses, food, fuel, insurance and commodity prices and interest
rates; delivery of new ships on schedule and at the contracted prices; weather
patterns; unscheduled ship repairs and dry-docking; incidents involving cruise
ships; impact of pending or threatened litigation; and changes in laws and
regulations applicable to Carnival.
Carnival cautions the reader that these risks may not be exhaustive. Carnival
operates in a continually changing business environment, and new risks emerge
from time to time. Carnival cannot predict such risks nor can it assess the
impact, if any, of such risks on its business or the extent to which any risk,
or combination of risks may cause actual results to differ from those projected
in any forward-looking statements. Accordingly, forward-looking statements
should not be relied upon as a prediction of actual results. Carnival undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
CARNIVAL PLANS TO FILE A REGISTRATION STATEMENT ON FORM S-4 AND A STATEMENT ON
SCHEDULE TO WITH THE US SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH
COMMENCEMENT OF THE OFFER. THE FORM S-4 WILL CONTAIN A PROSPECTUS AND OTHER
DOCUMENTS RELATING TO THE OFFER. CARNIVAL PLANS TO MAIL THE PROSPECTUS CONTAINED
IN THE FORM S-4 TO SHAREHOLDERS OF P&O PRINCESS WHEN THE FORM S-4 IS FILED WITH
THE SEC. THE FORM S-4, THE PROSPECTUS AND THE SCHEDULE TO WILL CONTAIN IMPORTANT
INFORMATION ABOUT CARNIVAL, P&O PRINCESS, THE OFFER AND RELATED MATTERS.
INVESTORS AND STOCKHOLDERS SHOULD READ THE FORM S-4, THE PROSPECTUS, THE
SCHEDULE TO AND THE OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE
OFFER CAREFULLY BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE OFFER. THE
FORM S-4, THE PROSPECTUS, THE SCHEDULE TO AND ALL OTHER DOCUMENTS FILED WITH THE
SEC IN CONNECTION WITH THE OFFER WILL BE AVAILABLE WHEN FILED FREE OF CHARGE AT
THE SEC'S WEB SITE, AT WWW.SEC.GOV. IN ADDITION, THE PROSPECTUS AND ALL OTHER
DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE OFFER WILL BE MADE AVAILABLE
TO INVESTORS FREE OF CHARGE BY WRITING TO TIM GALLAGHER AT CARNIVAL CORPORATION,
CARNIVAL PLACE, 3655 N.W. 87 AVENUE, MIAMI, FLORIDA, 33178-2428, US.
IN ADDITION TO THE FORM S-4, PROSPECTUS, THE SCHEDULE TO AND THE OTHER DOCUMENTS
FILED WITH THE SEC IN CONNECTION WITH THE OFFER, CARNIVAL IS OBLIGATED TO FILE
ANNUAL, QUARTERLY AND CURRENT REPORTS, PROXY STATEMENTS AND OTHER INFORMATION
WITH THE SEC. PERSONS MAY READ AND COPY ANY REPORTS, STATEMENTS AND OTHER
INFORMATION FILED WITH THE SEC AT THE SEC'S PUBLIC REFERENCE ROOM AT 450 FIFTH
STREET, N.W., WASHINGTON, D.C. 20549. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR
FURTHER INFORMATION ON THE PUBLIC REFERENCE ROOM. FILINGS WITH THE SEC ALSO ARE
AVAILABLE TO THE PUBLIC FROM COMMERCIAL DOCUMENT-RETRIEVAL SERVICES AND AT THE
WEB SITE MAINTAINED BY THE SEC AT WWW.SEC.GOV.
APPENDIX I
BASES AND SOURCES OF INFORMATION
GENERAL
Unless otherwise stated:
(i) Share prices for P&O Princess and Carnival are taken from Datastream;
(ii) The $1:(pound)0.695 exchange rate used throughout this announcement is
taken from the Financial Times, 17 January 2002; and
(iii) References to the value of the Offer for the entire existing share
capital of P&O Princess are based on the 692,632,324 50 cent ordinary
shares in issue (by reference to the Implementation Agreement between
Royal Caribbean Cruises Ltd. and P&O Princess Cruises plc dated as of
19 November 2001.
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