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- [00:00]
David Brown
Audible subscribers can listen to all episodes of Business wars ad free right now. Join Audible today by downloading the Audible app. It's 1986 in Oslo, Norway. Norwegian Cruise Line co founder Knut Kloster sits at his desk in company headquarters. He's poring over designs for his new cruise ship. He's named it the Phoenix, and it's less of a cruise ship and more of a cruise city. It will far and away be the largest cruise ship ever built, carrying over 5,000 passengers and nearly 2,000 crew members. He's already drafted mock brochures that boast it's a ship with a skyline. Cnut looks up at the sound of knocking on his door. Come in. The door opens and his brother Einar walks in. Canute grins. Perfect timing. I just got the new designs for the Phoenix. Canute flips the designs around so his brother can see them and pounds his index finger on the pages. Can you tell what this is, Canute? It's a beach. A real beach on board a cruise ship. Can you believe it? We're going to import sand, have real palm trees, and the quote unquote ocean is going to be so big that passengers will be able to paddle around in little boats on it. Can you believe it? There will be boats on a boat. How incredible is that? Canute, the board sent me to talk to you. We've decided that the time is right to go public. Carnival's going public. They're going to get an influx of capital and this is the only way we can keep up. Yes, I know. We've discussed it several times. Right. So as you know, when a company goes public, investors scrutinize a company's bottom line. Yes, I know the process for a company going public. Why are you talking to me like I'm a six year old? Okay, if you understand, then why are you still commissioning new designs for the Phoenix? That's not what investors want to see right now. Because it's the future of cruising. It's a billion dollar moonshot. That's not keeping an eye on the bottom line. Kloster is visibly taken back, but part of what makes us an attractive company is that we are visionaries. And the Phoenix will reinvent cruising as we know it. It will be the biggest cruise ship in the world. Yes, but we already own the biggest cruise ship in the world. And it's an albatross around her neck. Seven years ago, Norwegian Cruise Line bought an old ocean liner and converted her into the largest cruise ship in the world. The ship's launch generated millions of dollars in free press, and the company thought the investment was worth it. But it suffered from several mechanical failures, including complete power outages that have left the ship stranded at sea more than once. Any free publicity it earned has been outspent on constant repairs and time out of commission. Kloster shakes his head. But this will be different. We will be building the ship ourselves, not converting an ocean liner. Everything will be top of the line. Canute, this isn't a debate. We need to cancel the Phoenix. If you cancel the Phoenix, then I'm leaving. Einar stares back at his brother, not saying a word, but his meaning is clear. Kloster's mouth gapes open. He didn't think Einar would actually call his bluff. I founded this company. You can't push me out. No one's pushing you out. We're pushing the Phoenix out. If you want to follow it, that's your folly. You're going to be sorry about this. Canute rolls up the plans for his dream ship and carefully packs them into a plastic tube and strides out of the office. Einar watches him go. He feels a twinge of guilt that he gave his brother an ultimatum. But Norwegian Cruise Line is competing with Carnival to make a good impression with investors and and launch a successful ipo. ANAR will do whatever it takes to make sure Norwegian comes out on top. The cruise industry has entered its cutthroat era.
- [04:26]
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- [04:57]
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- [05:49]
David Brown
From wondery. I'm david brown and this is business war. On our last episode. Ted Arison started Carnival cruise lines in 1972 with one rundown ship. The company initially struggled to attract passengers to its ramshackle boat. But with the help of a new marketing executive, Arison found success by advertising Carnival as the fun ship, a wilder, less formal cruising experience than its competitors. By the end of the 1970s, Carnival was regularly turning a profit and business analysts were warning Royal Caribbean, the industry leader, that Carnival was going to cut into its revenue sooner rather than later. Norwegian Cruise Line was also feeling the heat from Carnival. But neither Royal Caribbean nor nor Norwegian Cruise Line is going to let Carnival overtake them without a fight. In the 1980s, the battle for cruising supremacy moves from the high seas to the boardroom. But there are still plenty of sharks circling. This is episode three, A Shot across the Bow.
- [07:22]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Foreign
- [07:25]
David Brown
It's 1986 in Miami, Florida. Mickey Arison walks into a high end menswear store. The rush of air conditioning hits the back of his neck, giving him goosebumps. He's not used to his neck being exposed like this. Since he was in his late teens, he's worn his hair shoulder length. But just a few days ago, he got it cut short. He no longer looks like a countercultural rebel. Instead, he looks like a ruthless corporate executive. And now he needs his clothes to match the image. A sales associate in his late 50s bustles over. He wears a perfectly tailored navy pinstripe suit with a pink satin pocket square that matches his tie. May I help you, sir?
- [08:08]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Yeah, I'm looking to buy a suit.
- [08:10]
David Brown
The sales associate gives Mickey a once over, working hard not to show his distaste for Mickey's flamboyant suit with with its wide lapels. I'm afraid we may not have many options in your style. We tend to stock more classic looks.
- [08:24]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
That's what we're going for.
- [08:26]
David Brown
Recently, one of the bankers underwriting Carnival's IPO pulled Mickey aside after a meeting. The banker spent a long time rambling about how excited everyone was about Carnival going public. The timing was perfect. Cruises are still rising in popularity and Carnival is selling out most of its sailings, even with more ships than ever. But then the bankers stammered that there was just one concern. Mickey's appearance. With his long hair and funky clothes, Mickey didn't look the part of CEO. And he said, as silly as it sounds, is the type of thing Investors care about Mickey fumed. He's carefully cultivated his personal style over the years, but in the end, he cares about the success of the IPO even more. So he's gotten his hair cut and now he's going to buy an actual business suit. The sales associate narrows his eyes. All right, what kind of suit do you have in mind?
- [09:24]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Something that conveys that when I say my company will be worth billions, people will believe it.
- [09:30]
David Brown
I know just the thing. The sales associate leads Mickey to a rack of black suits with charcoal gray pinstripes. He quickly looks Mickey up and down. 40 regular, I'm guessing. Mickey nods. The salesman grabs a suit from the rack and marches over to a table full of shirts. He picks one up that has blue and white stripes with a white collar and cuffs. And now we just need the perfect power tie. He strides to another table where ties are laid out. He snatches up a dark gray tie with a paisley pattern. Perfect. He hands the clothes to Mickey and sends him off into a fitting room. A few minutes later, Mickey strides out in the full ensemble. The sales associate claps his hands together. Once you get that suit tailored, you're going to look like the King of Wall Street. Mickey looks himself up and down and nods. He looks like a corporate titan. He just hopes investors agree. Carnival goes public in July 1987, and it's a smashing success. It raises over $386 million in its first day of trading. The sales from the stock get Carnival out of debt and make the airsens personally very wealthy. Norwegian cruise line executives watch Carnival's IPO closely. They've been preparing for their own debut over the past year, and their changes have been much more substantial than a new suit. Knut Plaster's brother, Einar, took over and quickly changed the culture of the company. He moved the company's official headquarters from Norway to Bermuda. Since Bermuda has fewer labor regulations. The move allowed Norwegian to cancel all of the company's existing contracts with workers and draw up new ones at lower pay rates. He took the money saved on the workforce and invested in new ships. Norwegian Cruise Line files for its IPO on October 6, 1987. They plan on holding the official offering the following week. The press release promises that the offering will net the company $125 million. But it doesn't go the way Einar or the rest of the Norwegian team planned. It's nearly 10pm in Oslo, Norway, on Monday, Oct. 19, 1987. Einar Kloster pours himself a glass of wine in his kitchen. Tomorrow is Norwegian Cruise Line's ipo, and Einar is nervous. He's not sure if they should go through with it. While the stock market was trading high when Norwegian filed for its IPO two weeks ago, the intervening weeks have been rocky for the exchange, with sudden dips in trading. And on Friday, October 16, Iran had fired missiles at an American tanker ship in the Persian Gulf, causing concern about global instability. All weekend, Einar fretted. He debated canceling the ipo, but Norwegian needs this influx of capital if it wants to keep up with Carnival. And as soon as the exchange opened six and a half hours ago, there were reports of poor trading. Einar's clock in the hallway chimes. It's 10pm Time for the news. He turns on the TV in hopes that the stock market has rallied. He flips the channel to CNN Europe. The anchor looks somberly into the camera. The lead story tonight, the Dow Jones Industrial Average closed a record 508.32 points down. They're calling this the Monday Massacre as panicked sellers made this the worst drop in Wall street history. Einar stares at the tv. He can't believe this is happening now. He barely has time to process what he's seeing when his phone rings. It's the chairman of Norwegian Cruise Lines Board. Einar, are you seeing this? Yeah. We have to cancel the ipo. Einar closes his eyes. He knows the chair is right, but it feels so unfair. Carnival held its IPO just a few months earlier and is now sitting on a bed of cash. This was Norwegian Cruise Line's chance to catch up. But the world isn't fair, and Einar can't fight against what looks like the start of a global recession. Ted Arison is a lucky bastard. That he is. Einar hangs up, pours himself another glass of wine and slumps down in his seat to wallow. While the October 1987 stock market crash is a setback for a Norwegian cruise line, it's a boon for Carnival. The company buys back much of the stock it just sold, and with a recession that follows the crash, the other cruise companies struggle to raise money. With a deep war chest and the competition facing lean markets, the Arisons decide the time is ripe for Carnival to increase its size. And not just by building more boats this time. Now they want to acquire another company. It's 1988 in Miami, Florida, Mickey Arison writes on a whiteboard in his office, putting the final touches on a list of all the cruise companies in the world. He stands back so his father Ted can see. He caps the marker and taps it next to the column on the far left.
- [15:04]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Okay, so this column here is the big fish.
- [15:07]
David Brown
There are three names. Norwegian Cruise Line, Royal Caribbean and Princess, which runs trips to Mexico from California
- [15:16]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
in the second column. These are the mid sized companies. Most of them own a handful of older ships. And then lastly, these here are the small fry companies with one to two ships.
- [15:27]
David Brown
He uncaps the pin and makes a big X through the entire right hand column of smaller cruise lines.
- [15:33]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
In my opinion, these small companies are out. They just don't add enough value to be worth it.
- [15:37]
David Brown
Ted nods. So what are you thinking? Who does your gut say to go after Holland America?
- [15:43]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Seems like a good choice. They cater to higher end clientele than we do and it would add Alaskan cruises to our offerings.
- [15:49]
David Brown
Well, Holland America does make a lot of sense. Mickey looks at him.
- [15:54]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
But you don't love it. I can hear it in your voice.
- [15:57]
David Brown
Ted shrugs. Well, well, there's no denying it makes sense. But we're in a unique position here. This is our chance to make a major move. I'm just not sure it's the most ambitious choice.
- [16:09]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
All right then, what were you thinking?
- [16:11]
David Brown
I've heard some rumors that Gotas Lawson might be interested in selling its shares of Royal Caribbean. Mickey's eyes go wide.
- [16:19]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
I mean, if we bought Royal Caribbean,
- [16:22]
David Brown
that would change everything.
- [16:24]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
We would unquestionably be the biggest cruise company in the world.
- [16:27]
David Brown
Ted nods.
- [16:28]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
But we need more than just Gotas Larsen's shares to have majority control. Do you really think we could get either the Scalgans or the Wilhelmsons to sell?
- [16:37]
David Brown
It'd be a fight, but I'm not afraid of a little rumble. Are you? Mickey sets his jaw.
- [16:42]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Not one bit.
- [16:44]
David Brown
He draws a big circle around Royal Caribbean's name on the whiteboard. The Arisons have have their acquisition target, the most illustrious cruise ship brand in the world. But only time will tell if they've gone after a bigger fish than they can handle.
- [17:09]
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I'm Raza Jaffrey and in the new season of the Spy who we open the file on Benedict Arnold, the spy who betrayed the American Revolution. America is fighting to free itself from the British Empire and one of its foremost generals is Benedict Arnold. He's a smuggler turned battlefield hero and admired for his aggressive tactics. But when a war wound, a new wife, debts and politics test his loyalty to the Mags, he turns spy and devises a plot to shatter the revolution and help Britain capture rebel commander in chief General George Washington. And that plot would make him the most infamous traitor in U.S. history. Follow the Spy who Now Wherever you listen to podcasts, you can also listen to the full season of the Spy who Betrayed the American Revolution early and ad free on Audible.
- [18:10]
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- [19:24]
David Brown
It's summer 1988, off the coast of Italy. Ted and Mickey Arison stand on the deck of Ted's yacht. Across from them are Jack Seabrook and Richard Fane. Seabrook is the CEO of Gotas Larsen, which owns a minority share of Royal Caribbean, and Fane is the Gotas Larsen executive who oversees the cruise company. Ted holds up a glass of whiskey and the others follow suit to a deal in principle. After months of negotiation, Seabrook has just agreed to sell Gotas Larsen's shares of Royal Caribbean to Carnival. The deal still has to be approved by Carnival's board, but it's a big step in the Arison's plan to acquire Royal Caribbean. They clink their glasses. Seabrook takes a sip of the whiskey. So now that you have the minority share, what's your plan to get the majority? You have to know that the Norwegian partners in Royal Caribbean are not going to be jumping up and down at the thought of selling to the Arisons. Seventeen years ago, Arison seized money from Norwegian Cruise Lines US Accounts to start Carnival, betraying his partner, Norwegian Knut Kloster. The move destroyed Arison's reputation among the Norwegian shipbuilding community. This includes the Scogin and Wilhelmson families who own Royal Caribbean along with Gotas Larson.
- [20:47]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
We don't need them to like us, we just need them to like our money.
- [20:51]
David Brown
Well, it's going to take a lot of money. Sigurd Skoggin and Arn Vilhelmson don't agree on much, but one thing they can agree on is that Royal Caribbean is a far Superior product compared to Carnival. And they're not going to want to see you tarnish their brand. Mickey claps his hand on Seabrook's shoulder.
- [21:09]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Okay, we appreciate the heads up, but we got this.
- [21:14]
David Brown
Seabrook nods and takes another drink of his whiskey. I wish you luck. I for one, will be glad not to have to deal with those two bickering families anymore. But while the rest of the men celebrate, Richard Fane scowls. He only started working with Royal Caribbean because Seabrook assigned him to it. But he's found that he loves the cruise business. Fane's still employed by Gutas Larsen, but he was recently appointed CEO of Royal Caribbean. And if Carnival buys the company, he'll be forced out of the position he loves. The Harrisons may feel confident they can convince either the Skagens or the Wilhelmssons to sell, but Fane hopes the Norwegians fight back. Both Sigur Skagen and Arne Wilhelmsson are appalled that Gutas Larsen has agreed to sell their shares to Carnival. They have great disdain for Arison's company. He offers cheap, rowdy cruises. Meanwhile, Royal Caribbean has built a reputation of offering the finest service. Movie stars and royalty regularly sail aboard Royal Caribbean ships. Scoggin and Wilhelmsson meet and resolve that they will combine their money and buy the Gotas Larsen shares themselves in order to keep control of Royal Caribbean. But their old differences rear up and they can't come to an agreement. And in August 1988, Wilhelmson is getting ready for a breakfast meeting with Scogin when it's suddenly canceled. Wilhelmson soon learns that Scoggin is in New York and he's just sold his family shares to Carnival. It's August 1988 in Miami, Florida. Mickey Arison pops open a bottle of champagne inside Carnival headquarters. He stands up on a chair, carrying the open bottle.
- [23:08]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Everybody. Everybody. Carnival Cruise Line is now the majority owner of royal Caribbean with 70% of the shares.
- [23:20]
David Brown
Mickey takes a swig of the champagne.
- [23:24]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Drake. Enjoy, everyone. Celebrate. Carnival is now the biggest cruise line in the world and no one is even close.
- [23:35]
David Brown
He steps down from the chair, still carrying the champagne bottle. An executive approaches him, a worried expression on his face. Aren't you getting a little ahead of yourself? You know it's not a done deal yet, right?
- [23:48]
Home Depot Advertiser
Relax.
- [23:48]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
It's all just paperwork at this point. This is done.
- [23:52]
David Brown
Mickey spots a newspaper on a desk. It's open to a story on Carnival's acquisition of Royal Caribbean. Mickey grabs it.
- [24:00]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
See? It's in the papers. Therefore has to be true.
- [24:04]
David Brown
But I thought the deal gives Arne Wilhelmson 40 days to match the price for the Skagen and Gotas Larsen shares.
- [24:10]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
You really think Arne Wilhelmson is going to be able to come up with a few 550 million?
- [24:15]
David Brown
The executive shrugs. Mickey shakes his head.
- [24:19]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Maybe Scoggin was feeling a little guilty that he'd betrayed his countrymen and sold out to the evil Carnival Cruise Line. So he added this 40 day price match so Wilhelmson could potentially stop the bill. But it's meaningless unless Wilhelmson can come
- [24:32]
David Brown
up with the cash. Mickey pushes the paper against the executive's chest.
- [24:36]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Trust me. This is done. We're good.
- [24:40]
David Brown
Mickey turns and walks away from the executive. He's here to celebrate, not worry. But Mickey Arison underestimates just how dedicated Arne Wilhelmsen is to keeping his company out of the Arisons hands. With the clock ticking, he starts looking for a financing partner who can help him raise $550 million to match Carnival's price for the Gotas Larsen and Scoggin family shares. Wilhelmsen flies to New York and holds a series of meetings with various bankers. But there aren't many entities that have the reserves to buy out the Gotas Larsen and Scoggin shares without taking on a significant debt load. Wilhelmson calls on everyone. That might be a lead, but it's looking like he's going to come up short. Then Wilhelmsen gets a call from a banker who's been helping him try to put together a deal. The banker has good news. Jay Pritzker wants to meet with him. Pritzker founded the Hyatt hotel chain in the 1950s and is now one of the wealthiest men in the world. Recently he's become interested in buying a cruise line. Wilhelmson gets on the first flight he can to Chicago, where Pritzker lives. The two men have a meeting that lasts for hours and they come to a tentative deal. Pritzker will do his due diligence, but as long as there are no red flags, Pritzker will buy out the Gotas Larsen and Skagen shares. But with a deadline looming, Pritzker and Wilhelmsson have very little time to hash out the details of a deal of this magnitude. But they get help from an unexpected ally. It's nearly 10pm on a fall night in 1988 in Miami, Florida. Richard Fain, the recently appointed CEO of Royal Caribbean, is brushing his teeth when his phone rings. He spits out his toothpaste and hurries to answer a phone call. This late at night usually means some kind of emergency. He picks up the phone, bracing Himself for the worst. Hello. Richard Fane is Jay Pritzker. Oh, hi. I'd like to ask you a few questions about Royal Caribbean.
- [26:57]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
Can you.
- [26:58]
David Brown
Can you come to Chicago to meet? Fane's mind races. He met Pritzker several years ago. He doesn't know the man well, but he does know that he doesn't do things half heartedly. If he's asking Fain to meet, then he is seriously considering buying Royal Caribbean. Yes, I can be on a flight tomorrow. You sure? I know you're technically employed by Gotas Larsen. You feel like you have to protect that deal. I don't want to get you into any legal trouble or anything. Fain hesitates for a moment. It's a good question. The Arisons and Jack Seabrook, who's the CEO of Gotas Larsen, likely think it's Fain's job to facilitate their deal. But Fane doesn't see it that way. Well, my main responsibility is to the shareholders of Royal Caribbean to ensure that they get the best price. But I have no obligation to make it easier for Carnival to secure the deal. That's great. Well, I look forward to seeing you in Chicago. But real quick before I go, what do you think of the company? Well, in all honesty, I think Jack's making a mistake to sell his shares. This is a hell of a good company. That's what I was hoping to hear. We'll see you in Chicago. Looking forward to really digging into the company's strategic direction and. And its potential. Fane hangs up the phone, feeling giddy. Wilhelmson might actually stop Carnival's takeover bid. It's great news for him. The Arisons have more or less told Fane that he'll be out of a job if the Carnival deal goes through. Pritzker offers a way for Fane to stay in the job he loves. And Fane will do whatever he can to help. Pritzker and Wilhelmson sealed the deal. Arne Wilhelmson and Jay Pritzker work around the clock to hammer out the deal. Richard Fane helps, making sure to prioritize any requests for paperwork that Pritzker's team asked for. While dragging his feet on similar requests from the Carnival team. And two days before Wilhelmsen's deadline to match the Carnival offer, the deal for Pritzker to buy the shares is ready to be signed. It's early in the morning, November 2, 1988, in London, England. Richard Fane stands at the head of a conference table in Royal Caribbean's UK offices. The table is covered with stock certificates Contracts, disclosures and so forth. Executives and lawyers from Royal Caribbean, Gotas Larsen and Pritzker's company filter in. They're sipping coffee and stifling yawns. Fain has asked everyone to arrive early to complete the final stage of the deal. He and Arne Wilhelmson want the papers signed ahead of the deadline. When everyone arrives, Fane takes control. Okay, we have contracts to be completed and signed, partnerships to be consolidated, loans that need final approval, legal concerns to be addressed. I want teams working and I need everyone to be talking to each other. This is the final push. Come on, let's get this done. Yeah, let's get all set. The team gets to work. They work through the day and into the night. They make sure every last T is crossed and I is dotted. Carnival's lawyers call repeatedly, asking questions and causing delays. But Fain's team stays focused. Finally, at 2:30 in the morning, everything is finished. The only thing left is to complete a 350 million dollar transfer from the bank of Nova Scotia. There's a banker in New York standing by. Fain grins. Well, that's everything folks. We just need to get confirmation that the funds have been transferred and the deal is complete. Terrific. Fain picks up the phone and calls their banker. Tim, it's Richard Fain. We've just submitted a transfer request and I'm calling to get confirmation that it's gone through. All right, let me check. Fain can hear the banker typing on the other end of the line. He looks at the gathered executives and grins. I'm sorry, we don't have a record of that transfer. The color drains from Fane's face. What do you mean? I. I submitted it. I just need confirmation that it went through. Well, we handle 3 million transfers a day and about once a week one gets lost in the system and unfortunately looks like today yours was the one that got lost. That can't be. That transfer was for $350 million. And we'll find it. It's here somewhere in our system. It's just going to take some time. How much time? That I can't say. More than a day. Hopefully not, but you never know. Vane looks at the clock. They have just over 24 hours before Wilhelmson's deadline expires. If the bank doesn't find the money in time, all of Fane and Wilhelmson's work will be for naught. And nothing will stop Carnival from dominating the seas. It's just before 5 in the morning on November 3, 1988 in London, England. Royal Caribbean CEO Richard Fane paces the conference room in the company's British headquarters. Other executives sprawl out in chairs around the room. Their ties are loose and high heels are off. Coffee cups and takeout containers litter the place. It's been approximately two and a half hours since the bank of Nova Scotia lost the $350 million transfer that fain put through. He needed that transfer to complete the sale of Gotas, Larsen and Scoggin shares of Royal Caribbean to Hyatt Hotel founder Jay Pritzker. The bank representative has assured Fain that sometimes transfers get lost in the system, but they're always able to find them. But they can't predict how long it will take. But Fain and Pritzker are on a deadline. If they can't complete this transfer in just over 24 hours, Carnival will own the shares by default. But a half hour earlier, the banker had called to say they had narrowed the search for the missing transfer to a small area. Fain's not exactly sure what that means, but he's relieved when the banker tells him it shouldn't be too much longer before they found it and the transfer can be completed. Vane has been pacing for that entire half hour, waiting for the phone to ring again. He's exhausted to his core. It's been a month of working nights and weekends as Pritzker and Arne Wilhelmsson race to complete the deal. But there's too much adrenaline coursing through his body to sit down. The phone rings and Fane lunges to answer it. Did you find it? There's a long pause on the other end. We have a problem. Another one? Well, it's not really a problem, per se. Come on, spit it out. What? What is happening? We really think we're close to finding this transfer and resolving this matter. But our computers are down for maintenance.
- [34:20]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
What?
- [34:20]
David Brown
It's just a routine update. How long is this going to take? They're scheduled to be down for two hours. Fane looks at the clock. That means it will be 8 o' clock am in Oslo by the time the bank will even be able to start looking. That's still ahead of the deadline. Buffane is worried that something else will go wrong. The banker tries to reassure him we really are close to finding it. Once the computers come back online, we'll get back to work immediately. Call me the second the computer's a backup. Absolutely. Fain hangs up the phone once again. There's nothing he can do but wait. Two hours feels like an eternity. He has no idea how he's going to pass the time. It's nearly seven in the morning. The sun is coming through the conference windows. Richard Fain is standing on top of the conference table, belting out the soundtrack of Oklahoma to the room full of executives. His cheeks are flushed and his hair is turned from neatly styled to wild and frizzy. He knows it's slightly unhinged to be standing on a table singing Rogers and Hammerstein classics, but this whole experience has felt like something out of the Twilight Zone and it is passing the time. Vane's solo is interrupted by the phone ringing. Fane scrambles off the table and picks up the phone. Are the computers back up? They are. And I have good news. We've located the funds and the transfer has been completed. Fane turns to the room full of exhausted executives and gives a thumbs up. I knew it would happen. Fane thanks the banker and hangs up the phone. It's done. We did it. The crowd continues to cheer. Fain throws himself into a chair, the exhaustion hitting him, but he can't stop grinning. Carnival won't be buying Royal Caribbean and Richard Fane will remain as CEO. He and Arne Wilhelmson beat Ted and Mickey Arison. This is a victory for Royal Caribbean and a loss for Carnival and the Arisons, but it's not as clear cut as it initially seems. Carnival rebounds from its loss quickly. In late November 1988, three weeks after they failed to buy Royal Caribbean, the Arisons announced that they have acquired Holland America for $625 million. Holland America is a mid sized cruise line that runs upscale Alaskan cruises out of Seattle. The negotiations are smooth and Holland America's CEO stays on board to keep running that business. In many ways, it's a much better acquisition for Carnival than Royal Caribbean would have been. Holland America adds entire new cruise routes to the Carnival offerings rather than the redundant ones that Royal Caribbean would have brought to Carnival. And Carnival takes on less debt by buying Holland America. Plus, an examination of the books reveals that Holland America's finances are in a more solid position than Royal Caribbean. Meanwhile, Royal Caribbean took on a heavy debt load to keep itself out of Carnival's hands and Fain knows that to stay competitive with Carnival, they need to take on more debt to buy more ships. The truth is, the company has been working on thin margins for years. There's a very real chance that Royal Caribbean could fail. Carnival continues to make money hand over fist, and because they're now a publicly traded company, they're required to release information about their earnings. Richard Fane can see in Black and white. Just how much Carnival is outperforming Royal Caribbean. And so Fain decides he has to make a major change to Royal Caribbean's business. It's 1990 in Miami, Florida. CEO Richard Fain sits behind his desk in Royal Caribbean headquarters. The door opens and the chair of the company's board walks in. Fain stands up to greet him. Thanks for coming by. They both take their seats. Of course. What's on your mind? Well, as we think about bringing this company into the 21st century, I think we need to make some major changes. The board chair sighs. You're talking about easing Ed out of his position. Ed Stefan is a co founder of Royal Caribbean and currently serves as the company's president. Number two under Fane in the organizational chart. He's beloved by employees. Fain nods. Stefan had done amazing things for his company and his knowledge and attention to every facet of the Royal Caribbean experience. From the color of the curtains to the time it takes to get a plate of food from the kitchen to the table. It's all awe inspiring. But we're not the same company we once were. We've stated that one of our goals for the next few years is to take Royal Caribbean public. I believe we need someone as president who understands market capitalization and SEC concerns. If Ed had his way, we'd all still be using an abacus to do math. I can understand what you're saying. It's going to be a rough transition, I know. But I'm sure you'll have the board's support. Thank you. I think this is necessary because part of what we need to do is change the product. We can't afford to give passengers 52 complimentary items in their room. We have too much staff on our ships. We need our people to work smarter. This will definitely need to be done very delicately. Yes. And I plan on bringing in the best copy consultants we can to advise us. I know it will be hard, but the industry has changed. We need to adapt with the times if we're going to continue to grow and thrive. I don't disagree. The process might be difficult, but I believe in the end product. If we do this right, Royal Caribbean will be a mega brand. We won't just cater to one demographic. We will cater to all people around the globe. From your lips to God's ears. The chairman stands up. You have my blessing. Fain nods. He's glad the board chair is approved. But now he actually has to do what he's outlined. And what Fain's proposing is A major cultural shift. He hopes he can pull it off. It's a rough two year transition period. As Fane institutes the changes he envisioned, there's a consolidation of roles and the size of the staff shrinks on board the ships. Employees quickly learn that Fane has less interest in the day to day operation of the ships and they shouldn't come to him about issues like the style of the linens or the logistics of drink service. He brings in new Executives who hold MBAs from Ivy League universities. And many of the longtime executives feel pushed out, like the company they once knew so well is shifting beneath their feet. But Fain is successful in his goal of transforming Royal Caribbean from a company still run like a small family business into a modern day Corporation. In 1993, the company goes public and has a valuation of $1.1 billion, up from 800 million when Fain took over. But Carnival keeps beating out Royal Caribbean. On its flagship brand alone, it carries more passengers than any other cruise line. And now it owns Holland America and other smaller cruise companies. So Fane decides Royal Caribbean needs to get in the acquisition game too. In 1997, Royal Caribbean buys Celebrity Cruises. Carnival is still ahead, but Fane is keeping his company in the hunt. Norwegian Cruise Line continues to limp along in distant third place. In 1998, they prepare to go public a second time. But another downturn in the market forces them to postpone it again for a while. The industry hits a status quo with Carnival in the lead, followed closely by Royal Caribbean and Norwegian bringing up the rear of the big three cruise lines. But then Royal Caribbean makes a move that shakes up the cruising world yet again. It's November 2001 in Honolulu, Hawaii. Carnival CEO Mickey Arison sits in bed reading in a hotel room. It's just after midnight. He spent the evening watching the Duke men's basketball team take on the University of Hawaii. His son Nick manages Duke's team. He's just about to turn out the light when the phone rings. It's Howard Frank, Carnival's vice chairman. Mickey, it's Howard. I just got a call. Royal Caribbean's trying to buy Princess Cruises. Mickey bolts up, throwing the covers off and begins to pace. Princess Cruises has long been at the top of the second tier of cruise companies. It operated out of Southern California and primarily ran cruises to Mexico. Its primary claim to fame is being the cruise line the television show the Love Boat was set on. But if Royal Caribbean buys Princess, it will vault over Carnival to be the number one cruise company in the world.
- [43:59]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
What are the terms we don't know
- [44:01]
David Brown
exactly how much Royal Caribbean is offered, but we do know that there's a poison pill of about 500 million which is protecting Royal Caribbean's deal. But we can deal with that, right? I mean, we have a war chest for exactly this reason. Mickey can tell from Frank's voice that he's fired up and ready to make an offer on Princess. But Mickey's not so sure.
- [44:21]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
If we did buy Princess, would it even get past the regulators?
- [44:26]
David Brown
Because Carnival already dominates so much of the crew space, it's possible that the United States or European governments might block the deal out of concern that it would turn Carnival into a monopoly. Well, it's a risk, but I think it's a risk we need to take.
- [44:41]
Various Characters (e.g., Mickey Arison, Einar Kloster, Richard Fain)
All right, I'll think about it.
- [44:44]
David Brown
Mickey hangs up the phone and continues to pace. It's easy for Frank to be bullish about going after the deal, but Mickey personally owns about half of Carnival stock. If this deal goes bad, he could be wiping out his personal wealth. But then again, he's not sure he can live with ceding Carnival's dominance to Royal Caribbean. Mickey begins packing. He wants to be on the first flight back to Miami. And as he throws his clothes into his suitcase, his resolve hardens. His father risked everything to start Carnival and danced on the edge of bankruptcy many times in the early days of the company is the heiress of big risks, big rewards. By the time he's zipping up his bag, Mickey's made a decision. Carnival is going to try to buy Princess out from under a Royal Caribbean. The poison pill and the regulators be damned. Mickey just hopes this isn't the Gamble where he loses everything. From Wondery. This is episode three of Cruise Ship Wars. For Business Wars, a quick note about recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research. If you'd like to read more, we recommend Devils on the Deep Blue Sea by Christopher A. Guerin and Under Crown and Anchor by Bard Colvate and John Maxtone. Graham, I'm your host, David Brown. Austin Rackless wrote this story. Our senior producers are Karen Lowe and Dave Schilling. Our producers are Emily Frost and Grant Rutter. Sound design by Josh Morales. Fact checking by Gabrielle Jolais. Voice acting by Kieran Regan. Our managing producer is Matt Gant. Our senior managing producer is Ryan Lohr. Our executive producers are Jenny Lauer Beckman and Marshall Louie. For wondering, Follow Business wars on the Audible app or wherever you get your podcasts. You can listen to all episodes of Business wars ad free by joining Audible.