Royal Caribbean Group is reportedly in advanced talks to acquire a majority stake in Jamaica-founded Sandals Resorts International in a transaction valuing the Caribbean hotel group at more than US$6 billion.
The proposed transaction first reported in the Financial Times, would be the largest acquisition in Royal Caribbean’s history and would significantly expand the cruise operator’s presence in land-based Caribbean tourism.
The Financial Times, citing people familiar with the negotiations, reported that members of the family of Sandals founder Gordon “Butch” Stewart would retain an equity interest, while Royal Caribbean would become the controlling shareholder and could have an option to acquire full ownership later.
Separate reports indicate the transaction under discussion could involve Royal Caribbean investing around US$3 billion for approximately 50 per cent of Sandals, although negotiations remain ongoing and there is no guarantee a deal will be completed.
An agreement could reportedly be announced within days.
Royal Caribbean shares tumble
Investors reacted negatively to news of the potential acquisition.
Royal Caribbean shares, which trade on the New York Stock Exchange under the ticker RCL, fell sharply after the report emerged, reversing gains recorded earlier in Tuesday’s session.
The stock had climbed as high as US$261.66 during the day before falling to close at US$234.89, down US$15.36, or 6.14 per cent, from Monday’s close of US$250.25. The intraday low was US$231.03.
That represented a swing of more than US$30 between Tuesday’s high and low.
Before news of the Sandals talks emerged, Royal Caribbean and other cruise stocks had been benefiting from a decline in oil prices. West Texas Intermediate crude fell more than three per cent to below US$90 a barrel on Tuesday, providing some relief to travel companies for which fuel represents a significant expense.
Royal Caribbean’s stock has been under pressure more broadly. Monday’s US$250.25 closing price was already almost 30 per cent below its 52-week high of US$356.39, reached on February 10.
A major move into Caribbean resorts
An acquisition of Sandals would give Royal Caribbean a substantial position in the all-inclusive resort business and potentially allow the company to cross-sell cruise holidays and land-based Caribbean vacations.
Sandals Resorts International operates the Sandals adults-only brand as well as the family-focused Beaches Resorts. The company says its portfolio includes 20 Sandals and Beaches properties across 10 Caribbean islands.
The company was founded in Jamaica by Gordon “Butch” Stewart in 1981, beginning with Sandals Montego Bay. His son, Adam Stewart, is now executive chairman.
The potential transaction would represent a major change for the privately held Jamaican hospitality group. As recently as June, Adam Stewart publicly pushed back against reports that the family was seeking to exit Sandals, saying the company was “not for sale” and that the family remained focused on expansion. Those comments followed earlier reports that Sandals had explored a potential sale carrying a valuation of US$6 billion to US$7 billion.
Sandals is also investing heavily in Jamaica. In March, the company announced a US$200 million redevelopment of Sandals Montego Bay, Sandals South Coast and the former Sandals Royal Caribbean, which has been renamed Sandals Caribbean Cay. Sandals South Coast is scheduled to reopen in November, while Montego Bay and Caribbean Cay are expected to reopen in December.
For Royal Caribbean, Sandals would considerably broaden a land-based tourism strategy that has so far centred largely on destinations serving its cruise passengers.
The reported US$6 billion-plus valuation is also substantial relative to Royal Caribbean itself. The cruise company had approximately 267.45 million common shares outstanding as of July 24. At Monday’s US$250.25 closing price, that implied an equity market value of roughly US$67 billion.
Neither Royal Caribbean nor Sandals has announced a definitive agreement.
