Royal Caribbean Group has confirmed that it is buying a 50% ownership stake in Sandals Resorts, as earlier reports suggested.
The company will pay about $3 billion for the stake, making this the biggest deal in its history. The transaction is expected to close early next year.
On Tuesday, investors reacted negatively after the Financial Times reported that the deal could value Sandals at over $6 billion, causing Royal Caribbean shares to drop sharply. After both companies confirmed the deal in a joint announcement on Wednesday, shares rose slightly in premarket trading.
After Tuesday’s report, Stifel questioned the strategy behind the deal. They noted that investors might be skeptical because Sandals mainly serves adults and couples, while Royal Caribbean focuses on family vacations. Stifel also mentioned concerns that growth in Caribbean cruises could be slowing, which raises questions about whether expected weaker demand after 2027 led to this riskier move. Still, Stifel said Royal Caribbean’s management has built enough trust that investors should give them the benefit of the doubt. The firm added that with a different leadership team, they would be much more skeptical.
Stifel suggested that Royal Caribbean might eventually close some Sandals properties and turn them into new private island destinations in the Caribbean, which could help increase profits. The firm stayed positive on the stock after the announcement.
This new partnership will let Royal Caribbean move beyond just cruises and offer land-based vacations too. The company will be able to sell travel packages that combine both land and sea experiences.
Jefferies also commented after the announcement, saying they see the deal in a positive light. The firm noted that the line between cruise travel and land-based resorts is becoming less clear, so moving into land-based resorts is a logical next step for Royal Caribbean as it tries to capture more of the $2 trillion global vacation market. However, Jefferies kept a neutral rating on the stock overall.
The Sandals stake is expected to generate roughly $300 million in annual earnings before interest, taxes, depreciation and amortization. Mizuho noted that the initial negative market reaction to Tuesday’s report had wiped out roughly $4 billion in Royal Caribbean’s equity value before the deal was formally confirmed.
