Royal Caribbean is preparing to spend around $3 billion on twenty buildings that cannot move. The Financial Times reported on Tuesday that the cruise company is in advanced talks for a controlling stake in Sandals Resorts International, the Caribbean all-inclusive chain, at a valuation above $6 billion. CNBC puts the cheque at roughly $3 billion for half the equity. The family of the founder, Gordon "Butch" Stewart, would keep a stake and Royal Caribbean would take control, with a path to owning all of it later. Nothing is signed, and the talks may still come apart.
The market's answer arrived the same afternoon. Royal Caribbean's shares fell about 6 percent, the worst session in six months, on news of a purchase the company has not even made yet. Acquirers routinely slip a point or two when a deal leaks. Six percent is not a wobble about price. It is a judgment about the thing being bought.
And the judgment has a reason sitting in the company's own year. Royal Caribbean stock is down roughly a quarter over the past twelve months, after it cut its revenue growth forecasts on softer demand for European sailings. That is the cruise industry's standing answer to a weak market: the remedy for a quiet region in cruising is to sail out of it. A ship that nobody wants to board in the Mediterranean this summer is a ship in the Caribbean next summer. The asset has an engine. What is being purchased now is twenty resorts across Jamaica, Saint Lucia, Barbados, the Bahamas, Antigua, Curaçao and Turks and Caicos, and if the Caribbean has a bad decade, every one of them has a bad decade.
Except Royal Caribbean crossed this line years ago and nobody minded. It already owns Caribbean ground it cannot move — CocoCay and the other private destinations where its passengers spend their beach day — and it has been building out land offerings for some time. Those turned out to be among the most reliable things it sells, because a passenger who is already aboard has nowhere else to spend. Sandals is not a tired asset either. The company put $200 million into three of its Jamaican resorts this year, with two of them reopening before Christmas. What is different is the size of the commitment and the fact that this time the guests have to be persuaded to come, rather than delivered by the ship they already paid for.
Which is the actual purchase, and the company says so: the Financial Times reports diversification and cross-selling as the motive, and Royal Caribbean has been open about wanting to be a vacation company rather than a cruise company. A cruise passenger and a Sandals guest are frequently the same household at different stages of life, and owning both means never losing them to the other.
The oldest advantage in this business is that when a market goes quiet, you weigh anchor. For about $3 billion, Royal Caribbean is buying twenty places it will have to stay.
The remedy for a quiet region in cruising is to sail out of it.
