Royal Caribbean Group has accomplished a goal in buying the rest of Silversea Cruises, having had full ownership of the expedition cruise player on its agenda for the past two years.
The Richard Fain-led owner of 62 ships acquired the remaining third on Friday with 5.2m shares that closed at $51.77 and have since risen to $56.16, jumping nearly 17% on Wednesday by noon New York time.
As a result, the deal's value has improved to $292m from $269m over the past few days.
New York-listed Royal Caribbean bought two-thirds of Silversea in July 2018 for $1bn in debt from Heritage Cruise Holdings.
"We have always wanted to take full ownership of Silversea since we purchased a two-thirds stake in 2018," spokesman Jonathon Fishman told TradeWinds.
"We had the opportunity to purchase the remaining stake at a good price and welcomed the opportunity to fulfil our original desire to take full control of the brand."
He said the buyout will not impact Silversea's operations, facilities or employees but the company plans to leverage synergies related to global market access and economies of scale without compromising Silversea.
"Silversea will remain a crown jewel in the Royal Caribbean Group’s portfolio, with a brand reputation and product differentiation that Royal Caribbean Group plans on cherishing, supporting and growing," Fishman said.
"Royal Caribbean is confident that purchasing the remaining stake in Silversea will enhance our financial profile and is in line with our strategy to enhance our offerings, create revenue in strategic growth areas and expand our geographic footprint.
"Our investment in Silversea has deepened Royal Caribbean Group’s luxury and expedition offerings and expanded the breadth of vacation options for our guests."
Full ownership should boost cruise yields
Royal Caribbean's swoop for all of Silversea should improve overall cruise yields, especially since expedition cruises are gaining preference over trips on huge ships with thousands of people, according to Morningstar analyst Jaime Katz.
"This competes for different customers than Royal Caribbean International," she wrote in a client note.
"Often times, the high income demographic of this travelling cohort tends to be more resilient throughout economic cycles."
More than a third of Royal Caribbean International's 33 ships carry over 4,000 passengers, according to VesselsValue.
Nonetheless, Morningstar does not plan to raise its price target of $52 for Royal Caribbean's shares since the cruise sector outlook is still uncertain and the company will probably disclose more details on the deal later this month.
Further, Silversea's ships represent only a modest increase in capacity for Royal Caribbean at a time when the industry is already consolidated, Katz said.
A very good deal
Regardless of how full acquisition will impact future earnings, the New York-listed company has bought the rest of Silversea for very cheap after the pandemic crushed its value, she said.
Royal Caribbean's purchase of the rest of Silversea with 5.2m shares indicates that it paid perhaps as little as $245m, implying that the brand is now worth only $735m.
"Recall, Royal acquired a two-thirds stake in 2018 based on a Silversea enterprise value of $2bn," she said.
"In our opinion, the timing of this transaction illustrates Royal is opportunistically capitalizing on a deteriorated cruise environment in order to bolt on the rest of a previously attractive enterprise at a more compelling price."
