TUI and Royal Caribbean Expand Cruise Partnership With $1.3 Billion Deal

TUI Group is selling Hapag-Lloyd Cruises to its joint venture with Royal Caribbean Cruises in a deal worth $1.3 billion (€1.2 billion).

The headline figure is the enterprise value with a net cash consideration of around $767 million (€700 million).

TUI will put the proceeds towards its previously announced digital transformation as well as to strengthen the group’s balance sheet.

The purchasing company, TUI Cruises, is a 50:50 joint venture between TUI Group and Royal Caribbean, established in 2008.

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When the deal goes through later this year, two of TUI’s three cruise businesses will now be part of the joint venture with luxury and expedition brand Hapag-Lloyd Cruises joining its mass market German business. For the moment its UK-focused brand Marella Cruises remains outside.

Hapag-Lloyd Cruises operates five vessels — two luxury liners and three smaller expedition ships, primarily aimed at the German-speaking market. One of the main drivers of the deal is the potential internationalization of the business. The fleet will likely grow in the coming years.

“Products and brands such as MS Europa and MS Europa 2 have international potential and appeal,” Fritz Joussen, TUI CEO, said in a statement.

“Going forward, this will enable us as shareholders to take a capital-light approach to financing the ships and international growth within a joint venture framework. TUI and Royal Caribbean Cruises have developed the joint venture company on the basis of a strong partnership over the past ten years. The expansion decision is the next big step of growth for us – from a strategic and a commercial perspective,”

Hapag-Lloyd Cruises generated revenue of $334 million (€305 million) and an underlying profit (EBITA) of $47 million (€43 million), in the financial year ending September 30, 2019.

The transaction is expected to close in the summer.

Joussen compared the deal to consolidation in the car industry where a luxury brand like Bugatti is part of the Volkswagen Group alongside more mainstream offerings like Seat and Skoda.

He said there was a need to have “propositions, brands separated and very clear cut”, implying that Hapag-Lloyd Cruises name will remain.

Hapag-Lloyd Cruises was once part of the wider shipping business but TUI sold off its remaining stake in the cargo company in 2017.

What the Deal Means For TUI

The deal is pretty much win-win for TUI as it helps generate a decent amount of cash and will enable fast growth of its luxury and expedition cruising business.

While the company’s move towards content — hotels and cruise ships — over the last few years has involved taking on more assets, the next stage of growth will be more asset-light. The cruise business is now largely held in a joint venture and its digital and hotels expansion will also be less capital intensive.

Royal Caribbean’s Thinking

Royal Caribbean Chief Financial Officer Jason Liberty declined to comment on the prospect of a deal when asked by Skift earlier this week, but on an earnings call on Tuesday he expressed satisfaction about the partnership in general.

“[The] performance of that brand has been exceptional, and we really believe that in the German market and TUI Cruise’s position in that market, how it’s trading, how it’s growing in its demand, we’re very happy and which makes us very excited about the German market and the overall European market,” he told analysts.

The acquisition of Hapag-Lloyd Cruises is the second involving a luxury cruise line in recent years. In 2018 it announced a deal to take a majority stake in Silversea. As a result Royal Caribbean now has a much bigger foothold in the growing luxury and expedition market.

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