Activist Shareholder Demands Turnaround at Norwegian Cruise Line Holdings

Elliott Investment Management, a well-known activist shareholder, is setting its sights on Norwegian Cruise Line Holdings, calling the cruise company a laggard and underperformer. In a letter to the board, which was released publicly, Elliott is calling on the board to act immediately or says it will go to shareholders to reverse a “decade of strategic misjudgment and poor execution.”

The activist investor, which is well-known for its recent battle with Southwest Airlines and having taken on other giants, including oil refiner Phillips 66, announced that it has accumulated a greater than 10 percent economic interest in NCLH, the publicly traded parent company of Norwegian Cruise Line, Regent Seven Seas Cruises, and Oceania Cruises. It is presenting a plan called Norwegian Now, demanding that the board take immediate action.

The company, which traces its origins back to 1966, is known as one of the pioneers of the modern cruise industry and has been publicly traded for a little more than a decade. It, however, has a history of management and strategy changes, poor execution, and lost its leadership in the industry to competitors Carnival Corporation and Royal Caribbean Group. More recently, MSC Cruises has also grown in the North American market, pushing Norwegian by most measures to fourth in industry rankings by size. Norwegian was reinvigorated after it was taken over by Genting Group and Apollo Management about 25 years ago, and according to Elliott, was the industry’s top financial performer when NCLH went public at the beginning of 2013.

“Over the past decade, the company has fallen from a best-in-class cruise operator at the time of its initial public offering to a clear industry laggard, suffering from inconsistent strategy, weak execution, inaccurate guidance, and poor cost discipline,” contends Elliott in its letter to the board. “Norwegian has lost its former position as a profitability leader and now operates near the bottom of the peer set.”

The letter points out that Norwegian has the right building blocks, including a modern fleet and an industry in strong demand. It also points to untapped potential. It says Norwegian has a unique opportunity with an industry tailwind, high-quality assets, and an untapped opportunity. Elliott says it believes Norwegian’s stock price could be increased by 159 percent versus current levels.

Elliott contends the board has failed in its oversight and that the management has changed strategies, failed in its execution, and failed to anticipate industry development and consumer preferences. It cites Norwegian’s private island in the Bahamas as an example, noting the company invited the feature in 1977 and more recently failed to develop it while competitors eclipsed the offering. Norwegian is now investing in the island, adding a pier, pool, and other attractions, but the project is behind schedule, while Norwegian already repositioned ships to the Caribbean before the new features were available. Elliott also contends the company has a lack of cost discipline.

The letter also cites the change in CEO of the company announced last week. It says the selection of a “long-tenured board member with no cruise-industry executive experience” continues a “troubling pattern of poor judgment and insufficient process.”

Elliott’s plan calls for a comprehensive board change, including new directors with relevant industry and operational experience. It also wants a management review and a new business plan that addresses the lack of cost management. The Wall Street Journal reports Elliott has been in talks with long-term Royal Caribbean executive, Adam Goldstein, who was with the cruise line from 1998 to 2020 and also served a term as the Chairman of the Cruise Lines International Association (CLIA).

The release of the plan comes two weeks before Norwegian is scheduled to report year-end financial results on March 2. It also gives Elliott about a month before nominations for the company’s board and proxy issues could be filed for the next annual shareholder meeting.

The investor, in its letter to the board, says its preference is to “reach a construction resolution” but notes it is prepared to “take our case directly to shareholders.” The presentation already lists the name of the company’s proxy solicitor.

Norwegian Cruise Line Holdings said in a statement that it “regularly engages with our shareholders to hear their views on our strategy and progress.” It says this is the first contact from Elliott Investment Management.