P&O Establishes Leading Position in German Cruise Market.

LOS ANGELES--(BUSINESS WIRE)--Sept. 29, 1999--

London-based P&O, parent company of Princess Cruises, today announced that it has acquired a majority stake in Germany's leading cruise company.

The following news release issued in Germany and Britain earlier today gives details of the transaction valued in excess of 1 billion German Marks ($550 million) over the next five years.

This latest move in P&O's continuing and intensified focus on cruising worldwide means that the company's cruise businesses now include the leading premium brand in the largest market, North America, the number one brand in the second largest market, the U.K., the number one brand in the third largest market, Germany, and the number one brand in Australia.

Princess President Peter Ratcliffe commented: "We are delighted that P&O continues to extend its global reach in cruising. As a group we now offer distinct local products in four of the five largest national markets worldwide and have market leadership positions in each of these. The continuing expansion of our international group will provide Princess with further opportunities for operational synergies and the international transfer of know-how and expertise."

Note: For an electronic copy of this release and access to Princess' online Newsroom containing past news releases, background information and photography, visit www.princess.com.

P&O To Take Leading Role in German Cruise Market

The Peninsular and Oriental Steam Navigation Company and Arkona Touristik announce that they are forming a major new company to develop Germany's fastest-growing cruise operation, Aida cruises. The new company is ordering two new ships. P&O will also acquire the cruise business associated with Seetours International, Germany's leading cruise and ferry tour operator, including ARKONA. The Aida and Seetours businesses account for approximately 25% of the German cruise market.

Aida Cruises will own, operate and market the three-year-old 1,200 berth cruise ship AIDA. She is the largest ship exclusively for the German cruise sector. Although AIDA was only introduced in June 1996, she has become the best known cruise ship in Germany with the highest consumer and travel agent preference. She already accounts for over 16% of the German cruise market.

Negotiations are expected to be concluded shortly with Aker MTW Werft in Wismar, Germany for two new ships for delivery in 2002 and 2003. They will be built to a high specification similar to AIDA with 1,270 lower berths. The new ships will have the same design philosophy that has proved so popular with AIDA, including an emphasis on a premium-quality product with a relaxed atmosphere.

Initially, P&O will invest DM150 million in the new company and will hold 51% of the ordinary shares. It has options to acquire the remaining 49% shortly after delivery of the two new ships. Arkona Touristik, a private company owned by the Rahe family, will transfer the Aida business and will hold the rest of the ordinary shares. The cruise concept offered on board AIDA is unique in Germany. It is aimed at younger to middle aged Germans who prefer an active, resort style holiday with premium quality consistent with that offered by P&O. Key product features are buffet style dining, health and fitness facilities, high quality entertainment and a wide range of sporting and other activities ashore. The average age of AIDA passengers is 43.

P&O will also acquire the whole of Seetours International. Established 1960 and now part of Arkona Touristik, it has become one of the best known names in German cruising. Seetours operates ARKONA, a 520 berth ship offering a more traditional cruise experience. The business also includes a major river cruise operation and Germany's leading general sales agency for cruises and ferries.

The German cruise market is largely undeveloped. The total number of ocean cruise passengers in 1998 was approximately 300,000 compared to 700,000 in the U.K. and 6 million in the U.S. The compound annual growth rate over the last five years has been 11%, but studies suggest that it could be far greater with increased investment.

Commenting on the announcement, P&O Chairman Lord Sterling said: "This is the most important strategic move we have made in cruising since P&O acquired Princess. It will give us a leading position in a market with huge potential and is a significant further step towards P&O becoming a major force in all of the world's cruise markets."

Horst Rahe, Chairman of Arkona Touristik, said: "We are delighted to be working with a company of the stature of P&O. Its strong financial backing will enable our proven management team to achieve its ambitious expansion plans. I have no doubt that Germany will be a major cruise market in the years to come and that Aida and Arkona will continue to be the leading operators."

Arkona Touristik is advised by E C Hambro Rabben & Partners Ltd.

Notes to editors

1. Arkona touristik is Germany's leading deep sea and river cruise operator. It is owned by Deutsche Seereederie (DSR), the former East German state-owned shipping group, which was privatised in 1993 and is now owned by the Rahe family. The Aida cruise business consists of a ship operating company based in Rostock employing 31 shore side staff and 336 on board the cruise ship AIDA, and a sales and marketing company in Frankfurt employing 40 staff.

2. P&O was founded in 1837 and currently has a market capitalisation of approximately(pound)6 billion (DM18 billion). In 1998 it had a turnover of(pound)5.9 billion (DM18 billion) and an operating profit of(pound)561 million (DM1.7 billion). P&O is one of the world's leading cruise companies. It operates 14 cruise ships worldwide, with nine in the U.S., four in the U.K. and one in Australia. Its U.S. business is Princess Cruises, one of the best known brands which includes the world's biggest cruise ship, GRAND PRINCESS, while in the U.K. and Australia the P&O brand is a recognised market leader. In addition to the 14 ships currently in operation, there are nine ships on order for delivery up to 2004 at a cost of(pound)2.3 billion (DM7.1 billion). P&O is also one of the world's most successful cruise companies with operating profit in 1998 of(pound)216 million (21% up on the 1997 result of(pound)178 million) and a return on capital employed of 15%.

3. Germany has featured in the history of P&O for many years. As long ago as 1825, the General Steam Navigation Company acquired by P&O in 1920, was sailing between London and Hamburg. Today, 42 of P&O's fleet of 171 ships are German built. The largest and most recent is ORIANA, built at Papenburg in 1995 as the flagship of its UK cruise company. Her larger sister, AURORA, is due to be delivered in April 2000. P&O's joint venture container shipping company, P&O Nedlloyd, has an extensive presence in Germany, including five ships on order there, of which two are being built by Aker MTW Werft in Wismar. P&O's logistics company, P&O Trans European, has a major operation through the Rhenania Group, based in Mannheim, and earlier this month announced a new logistics centre at Duisberg. P&O jointly developed Europe's biggest shopping and entertainment complex at Oberhausen near Dusseldorf. In total P&O employs 3,200 people in Germany.