P&O Princess Rejects Carnival’s Offer

The Board of P&O Princess states that, at the end of last week, Carnival conveyed its interest in a possible transaction with P&O Princess. Carnival's proposal is subject to several pre-conditions including regulatory approval and financing. After consider Carnival's proposal and reviewed it with its financial and legal advisors. Based on this review, the board has concluded that the proposed dual listed company transaction with Royal Caribbean remains the most attractive alternative for P&O Princess shareholders. The board believes, and has been advised, that the Carnival proposal is not as favorable financially to P&O Princess shareholders and would face greater execution risk than the transaction with Royal Caribbean. In light of this, and in accordance with the terms of P&O Princess's agreement with Royal Caribbean in relation to alternative proposals, the board has communicated this in writing to Carnival. A summary of the principal terms of Carnival's proposal is attached to this announcement.

In particular, the Board believes that Carnival's cash and share proposal: · would not offer P&O Princess shareholders the value and upside potential which it expects will be generated by the DLC combination with Royal Caribbean · does not represent an irrevocable commitment to make and maintain an offer and is subject to a number of pre-conditions, including financing and regulatory approvals · would not permit P&O Princess shareholders to retain shares included in the FTSE All Share Index, resulting in potentially significant flowback · is subject to greater regulatory risk in the United States and the European Union.

The Board, which is being advised by Schroder Salomon Smith Barney, therefore confirms that it continues to recommend the proposed combination with Royal Caribbean to shareholders. Peter Ratcliffe, Chief Executive Officer of P&O Princess, said: "Our response to Carnival is based on two clear criteria - value for our shareholders and deliverability. Their proposal falls short on both counts. Through our combination with Royal Caribbean, our shareholders will participate in the significant benefits of creating a world leading competitor to rival Carnival." Lord Sterling of Plaistow, Chairman of P&O Princess, said: "We made it clear on announcing the Royal Caribbean combination that we were creating a truly formidable company that would go from strength to strength. Our response to Carnival simply recognises that their proposition will not deliver the same value for our shareholders."

Schroder Salomon Smith Barney and Credit Suisse First Boston (Europe) Limited, which are regulated in the UK by The Securities and Futures Authority Limited, are acting for P&O Princess Cruises plc and no one else in connection with the proposal from Carnival and will not be responsible to anyone other than P&O Princess Cruises plc for providing the protections afforded to customers of Schroder Salomon Smith Barney and Credit Suisse First Boston (Europe) Limited or for providing advice in relation to the approach.