Cruise control

Even after the merger, P&O Princess Cruises and Carnival are still separate. Brendan Malkin finds out how P&O counsel Tony Kaufman keeps it all together



For a year and a half Tony Kaufman, P&O Princess Cruises head of legal, worked 16 hours a day on one of the most complex transactions imaginable – the merger of his company with the world’s largest cruise operator, the Miami-based Carnival.

Although such a union had been on the cards since 2000, when P&O demerged from the Peninsula and Oriental Steam Navigation Company (which owns ports, ferries and containers), there was tremendous unpredictability in the events of those 18 months. Kaufman wrestled with regulators on both sides of the Atlantic, juggled two rival bidders (Carnival and Royal Caribbean), sought – successfully – to set up a dual-listed company, and finally began the process of integration of Carnival with the Los Angeles-based P&O Princess Cruises.

Kaufman, an ex-corporate associate of Gibson Dunn & Crutcher, who joined P&O partly to handle the gamut of practice areas that goes with the job. These range from aviation to purchasing and leasing. He came to England in 2000 with little knowledge of the country’s legal system. The Carnival merger threw him in at the deep end as he sought to digest and apply England’s takeover code, competition law, financial services, corporate compliance regulations and so on.

He came out the other side of the deal preferring, in some areas, the English way of lawyering. The servicing of documents was more irksome in the US, he says, and while US regulators were unclear about the timing of when they wanted things to happen, their English counterparts, who Kaufman describes as more “interactive”, provided helpful timetables. They also then stuck to them.

Seemingly, P&O has a disproportionately low number of lawyers. Within P&O Princess Cruises there are four divisions: Princess Cruises in the US, P&O Cruises in the UK and Australia, and Seetours in Germany. Just five in-house lawyers work out of these offices, so Kaufman relies on a select few highly efficient lawyers to whom he outsources work. Freshfields Bruckhaus Deringer in London, which worked intensively on the Carnival merger, handles P&O’s corporate work. Norton Rose handles ship construction and financing and Rome’s Biolato Longo Ridola & Mori does the company’s Italian construction work. Litigation is dealt with by claims handlers, who refer work to the mutual protection and indemnity (P&I) clubs, which in turn send it to dispute resolution specialists of their choice.
Sullivan & Cromwell handled the US side of the Carnival-P&O dual listing on the New York and London Stock Exchanges. Post-merger, though, P&O’s firm of choice in the US is now New York firm Paul Weiss Rifkind Wharton & Garrison, Carnival’s favourite.

Carnival and P&O are slowly integrating into a single economic entity. Parts will remain separate because of the dual listing and because the combined companies comprise of 13 brands, which will each retain its own marketing and specialisation. However, to improve efficiency, the purchasing and IT will be integrated. This involves Kaufman returning to Los Angeles in July (he spent the first 12 years of his life in London before moving to Los Angeles).
His associate Chloe Marshall, an ex-Norton Rose lawyer with seven years PQE, will continue to hold the fort in London. In addition to heading up P&O, he will liaise with Carnival’s 12 lawyers on matters affecting both companies, adding further work to Kaufman’s already busy schedule. However, judging by Kaufman’s mild temperament and unfurrowed brow, stress to him appears to be like water off a duck’s back.

This is lucky, as there is rarely a lapse in work since Kaufman keeps abreast of all major projects in P&O’s four main hubs. “[I look at] anything that could be material to the business of the company, which is later included in the company report. For instance, each quarter I get updates on litigation, whether it’s brought by employees or arising out of delays in construction,” he says.

Many shipyards, with the exception of parts of the Far East, are suffering from a decline in orders stemming from Sars, the Gulf conflict and the economic downturn. P&O has on order four cruise liners, which each take around four years to build – two in Italy and two in Japan against Carnival’s 11. He is not responsible for the latter’s orders, although he is made aware of how it is getting along and has a vested interest in its success. This must be a surreal world for Kauffman, living in one merged entity but feeling closely associated with just one half of the whole.

Accepting the delivery of orders is a demanding time for the lawyers involved, as they have to check with engineers that the ship has been built to original specifications and multiple contracts have to be drawn up. In the current unstable economic climate, handling delays in construction is not uncommon for Kaufman. Smaller companies than P&O could go under for this reason – the loss of business caused by 11 September meant other cruise operators that were badly hit sought – in the main unsuccessfully – recovery through the courts from their insurers.

However, Kaufman says delays in shipbuilding do not lead to much consternation, as shipyards simply could not bear the excessive payments of compensation that are predetermined in the original contracts. “[Penalty payments] tend to work out fairly,” he said. Builders that inform Kauffman late of delays, however, receive higher penalties than those who do so in good time, before the liners get booked by passengers.
Delays cannot always be helped. Kaufman handled the contract renegotiation after the well-publicised fire in October 2002 on one of its cruisers, the Diamond Princess, which was under construction in Japan. The incident led to the delivery date being shifted from 2003 to 2004. But either way it is much easier for builders if they are involved in the construction of several ships rather than one or two, as it means they work according to one design specification rather than several, which is a far more time-consuming process.

Sometimes delays are out of the control of shipowners. On the day Kaufman and The Lawyer meet, one of the world’s largest shipbuilders, South Korea’s Hyundai Heavy Industries (HHI), is facing pressure from the EU, which has accused it of selling ships below cost price and supported by state subsidies. If the EU, which in turn is accused of making the complaint to justify subsidies to uncompetitive European shipyards, has its way, then HHI will see a slowdown in construction while an investigation takes place. This is reflective of the intense competitiveness of the shipping business. Kaufman, ever aware of this, will have to be tougher than ever if the two companies that make up Carnival are to safely navigate the future together.
Tony Kaufman
General Counsel
Carnival

Statistics
Organisation Carnival
Sector Cruise Liners
Turnover for 2002 $7bn (£4.18bn) (including Carnival)
Employees 55,000 (including Carnival)
Legal Capability Five (P&O) and 12 (Carnival)
General Counsel Tony Kaufman
Reporting to Chief executive officer Peter Ratcliffe
Main law firms Biolato Longo Ridola & Mori, Freshfields Bruckhaus Deringer, Norton Rose and Paul Weiss Rifkind Wharton & Garrison