Norwegian Cruise Lines IPO

| July 18, 2011

When a company files to sell stock they must be willing to disclose a lot more information than any private company

Norwegian just filed for the second time to hold an initial public offering to sell stock in their cruise line. Now the official "number three" will join the ranks of numbers one (Carnival Corp.) and number two (Royal Caribbean International) as publicly traded companies. Whenever a company decides to "go public" its means they have to be willing to share a lot more information than any private company must disclose.

So, let's scrutinize what shareholders may be buying. This new offering establishes a new corporation called Norwegian Cruise Line Holdings, LTD. This will become the holding company for the current NCL Corporation which will still exist as the owner/operators of the NCL fleet. The new company will also be registered in Bermuda, which has no corporate or capital gains taxes. It also limits how much they must disclose, although selling shares on the Nasdaq has its own requirements.

The first time NCL filed for an IPO was in September of 2010 for the existing NCL Corporation, but that offering was cancelled last March 16 by Apollo Management - citing the effect of the Japanese earthquake on one of its partners, Genting Holdings of Malaysia, owners of Star Cruises. That initial offering was planned to raise as much as $494 with shares priced at $18 to $20.

This new offering will have the ticker symbol NCLH on the Nasdaq exchange. The registration says the company hopes to raise $250 million, but this stated amount is just a technicality derived from calculating registration fees. The actual amount of money NCL hopes to raise in this IPO could and likely will be more than that. To put it into perspective, Carnival Corp. currently has a market capitalization (the value of all its shares put together) of $27.8 billion.

Many of the shares in Norwegian Cruise Holdings will be retained by the three current partners who together own 100% of the cruise line; Genting Holdings (50%), Apollo Management (37.5%) and TGP Viking Funds (12.5%). In a usual IPO the partners create a number of ahres and allocate a certain percentage to themselves and then the rest are sold to the public. Over time (generally after a holding period) the initial partners will be allowed to also sell all or part of the shares they are holding on the open market. Naturally, they can't do this without increasing the number of shares available to the public which tends to dillute shareholder value, so without getting too technical, they must register an intention to sell shares to notify the public first.

Such an IPO is one way investment firms like Apollo eventually make their money. After that initial holding they hope the share price will remain strong enough that they can make back some of the money they have invested into NCL. Just to be clear, Apollo bought into NCL in Aug, 2007 with a $1 billion investment to buy 50% of the cruise line. They subsequently sold 15% of their interest to TGP Viking Fund, but Apollo still holds the majority of seats on the board of directors, and because they are a Bermuda corporation they are not required to have any outsiders on the board.

Genting Holdings recently raised eyebrows by buying several square blocks of prime downtown Miami real estate overlooking the water close to the cruise terminal to build a large hotel complex. Speculators believe the company has hopes Miami will legalize gambling someday. Apollo Management is also no stranger to the world of casinos as the main investors in Harrah's Entertainment which operates several Las Vegas hotels.

Norwegian Cruise Lines currently has plans to build two brand new ships scheduled to arrive in April, 2013 and April, 2014 respectively. Called Project Breakaway, each ship has a price tag of approximately $850 million (615 Euro) and will contain 4000 berths. In the new filing NCL says it generated total revenue of $2.09 billion in the fiscal year ending March 31, 2011, as opposed to $1.93 billion for the fiscal year ending Sept. 30, 2010. It is also estimated that NCL carries an amount of debt close to $3 billion as of September, 2010.

Currently NCL only accounts for 10.9% of the cruise market, facing stiff competition from Carnival Corp. and Royal Caribbean who together account for 84.3% of cruise berth capacity.

The bios for senior management of NCL included in the IPO offering, as written by the company itself, say that CEO Kevin Sheehan joined NCL in 2007 (while the previous CEO, Colin Veitch was still at the helm). Sheehan's bio says "he served a nine-year career with Cendant as Chairman and Chief Executive Officer of their Vehicle Services Division including responsibility for Avis Rent A Car, Budget Rent A Car, Budget Truck, PHH Fleet Management and Wright Express. He is a graduate of Hunter College and the New York University Graduate School of Business."

Sheehan replaced Colin Veitch as CEO in 2008. Colin Veitch was a Harvard MBA who while at NCL mostly answered only to the chairman of Star Cruises in Malaysia. Veitch had been recruited from the financial division of Princess Cruise Line where he started in 1990, and he was given a long leash while CEO of NCL.

While Veitch has not commented on his days at NCL since he left - you know what they say about having plenty of rope. In conversations with the other well-known face of NCL, Andy Stuart, I was given the impression that anything that ever went wrong with NCL from the years 2000 to 2008 could somehow find its roots in the decisions of Colin Veitch.

Andy Stuart's bio reads "In April 2008, he held the position of Executive Vice President and Chief Product Officer and Executive Vice President of Marketing and Sales since 2003 and, prior to that, he was our Senior Vice President of Passenger Services. He joined us in August 1988 in our London office holding various Sales and Marketing positions before relocating to our headquarters in Miami. Mr. Stuart earned a Bachelor of Science degree in Catering Administration from Bournemouth University, United Kingdom."

The recruiting of the one person who had the most extensive ship building background at the time of the building and introduction of Norwegian Epic, Roberto Martinoli, was considered a "coup" when he joined NCL in March of 2009. He had been with Carnival and Costa for nearly 30 years and holds a master's degree in naval architecture and mechanical engineering from the University of Genoa. Roberto left NCL just a few weeks after the introduction of Norwegian Epic though he said he would retain a role as a part-time ship building consultant for the line.

By the way - NCL now wants to now be known informally as "Norwegian" rather than "NCL." We heard it through the grapevine, but sure enough, during the last public conference call by NCL we never once heard the term "NCL," but we did hear them refer to the company as "Norwegian" quite a few times.

Below are the mockups of the controversial cabins on Norwegian Epic: Click on the pictures for the full versions.

NCLs New F3 Balcony Cabin 1   NCLs New F3 Balcony Cabin 2
NCLs New F3 Deluxe Balcony Cabin 1   NCLs New F3 Deluxe Balcony Cabin 2
NCLs New F3 Inside Cabin 1   NCLs New F3 Inside Cabin 2

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