Ever take a look at Norwegian Cruise Line Holding’s stock and wonder why it sells for so much less than that of rival Royal Caribbean Group?
So do the people who now own a 10 percent stake in Norwegian. In fact, they are demanding major changes at Norwegian… or else!
A Bold New Direction?
For those who don’t follow cruise stocks, it’s worth noting that there is a $300 gap between the selling price of NCLH and that of RCL (as they are listed on the ticker).
This week, having scooped up a 10 percent share in Norwegian, activist investor group Elliott Investment Management sent a letter to the cruise line’s board of directors. In it, they outlined what they believe is ailing the company and how to fix it.
Step one: Get a new board of directors.
That’s right, Elliott sent a letter to the board suggesting, in essence, they fire themselves.
In an extensive document outlining both NCLH’s failings and ways to right the proverbial ship, Elliott wrote “We believe Norwegian represents one of the most compelling turnaround opportunities in the public markets today.”
In fact, the investment firm believed that, with proper guidance, NCLH’s stock could surge by as much as 159 percent.
What They Think Went Wrong
Having already put their literal money where their proverbial mouth is, Elliott backed up their claims of mismanagement. Among the issues they brought to light:
• Failing to capitalize on Great Stirrup Cay’s potential, despite being the first cruise line ever to create a private island destination.
• Moving ships out of the Caribbean and into the European market, only to realize the mistake and bring them back.
• Leadership, including newly-appointed CEO John W. Chidsey, with little (or no) practical experience.
• A failure on behalf of the board to take accountability for missteps.
• Excessive CEO compensation, particularly with regard to former exec Frank Del Rio. (Including the $10 million “consulting fee” he is currently being paid as part of a multi-year deal.)
• Out-of-control spending, including millions on artwork to be placed aboard Norwegian Prima and her sister ships.
In one particularly glaring example of excessive spending, Elliott’s document takes an in-depth look at the launch of Norwegian Prima.
The company staged what they called “the biggest event in Iceland’s history.” Among the associated expenses were flying over 2,600 people to the city of Reykjavik and performances by both the Icelandic Symphony Orchestra and the ship’s godmother, Katy Perry.
Their Plan For the Future
So what are the solutions to the problems currently plaguing Norwegian Cruise Line?
First and foremost, Elliott believes a complete change of leadership is needed. But they also believe the company has “significant revenue growth potential” as well as “bountiful low-hanging fruit for cost reduction.”
Among other things, they believe are extremely valuable to the company are its “engaged and proud front-line employees” (aka the crew) and the vast untapped market of folks who are just waiting to be introduced to cruising.
To this end, Elliott also believes future marketing opportunities need to be looked at through a more critical eye where their potential return on investment is concerned.
So how does this impact current and future cruisers? That may depend entirely on how the board reacts to Elliott’s demands and what, if anything, the investment firm does if ignored. Potentially, however, the changes could be huge.
For example, based on their future-looking insights, it seems likely that the development of Great Stirrup Cay would be fast-tracked.
Elliott would also like to see future ships increase overall capacity, rather than the current plan to build some smaller ships.
Of course, perhaps the biggest way in which this could impact cruise lovers is if, as predicted, the stock price truly does soar. Already, owners of Norwegian Cruise Lines Holding stock (of which we, in full transparency, are) receive a decent perk in the form of on-board credit for those holding 100 shares or more.
Only time will tell how things play out. There is, however, a ticking clock involved. Why? Because the Elliott Investment Management letter ended with a not-so-subtle warning.
“We are ready to meet with the Board to discuss these issues in greater detail and align on a path forward,” it read. “While our preference is to reach a constructive resolution, we are prepared to take our case directly to shareholders at the upcoming annual meeting.”
While the date for this year’s meeting has not yet been set, it has, in recent years, been held in early summer.
