Norwegian shares soar: activist investor wants to pull cruise player out of crisis

Shares in cruise operator Norwegian rose 13.4 percent in trading on Feb. 17 after an activist investment fund announced it had acquired a large stake in the company. It intends to push for sweeping operational and strategic changes in it to reduce the company's gap with competitors.

Quotes of Norwegian Cruise Line jumped by 13.4% and reached the maximum since October last year after the publication of The Wall Street Journal. Sources said that 10% of the cruise operator bought 10% of the fund Elliott Investment Management, which is known for actively fighting for changes in companies whose shares it acquires. Later, the fund itself published a letter to Norwegian's board of directors, promising to seek the transformation of the business. Elliott became one of the largest shareholders of the company, the document said.

The fund criticized management's flawed decisions that resulted in lost profits, the letter said. Norwegian was the first in the industry to acquire a private island, but failed to realize the advantage and turn the island into a resort, even after it became clear that private island destinations were the new driver, Elliott said. The foundation also named among the company's mistakes that it shifted its focus away from low-cost Caribbean destinations in 2022, concentrating on premium routes in Europe and Alaska. Third, Norwegian has gone against the trend toward more spacious ships by focusing on high-end ships, the letter said. The activist investor rebuked the operator's management for cost increases as well, especially rising corporate costs unrelated to customer experience.

Elliott is proposing a complete overhaul of the board, adding people with relevant industry experience, as well as a change in top executives to make Norwegian an industry leader.According to the WSJ, the foundation is considering former president of another cruise player, Royal Caribbean, Adam Goldstein, as a potential candidate for the board. The deadline to nominate candidates before the annual meeting expires next month.

Norwegian is the fourth largest cruise operator in the world with a market capitalization of about $7 billion, writes WSJ. At the same time, its securities are among the worst in the S&P 500 index over the past five years and continue to trade at levels close to the period of the coronavirus pandemic, despite the recovery in demand in the tourism sector, notes Barron's.

Norwegian's shares are lagging behind its competitors: since the beginning of the year they have risen by 2%, while Carnival's securities have added about 7% and Royal Caribbean's - 6%.

UBS analysts quoted by Investing note Norwegian's deep structural problems: weak brand recognition and limited investment opportunities due to its financial situation. The situation is complicated by the change of management: last week the company announced the departure of CEO Harry Sommer, his successor was former head of Subway John Chidsey. Stifel analysts wrote that investors may be confused by the new head's lack of experience in the cruise industry, WSJ reports.

According to Citi analyst James Hardiman, a change in CEO two weeks before the company releases its fourth-quarter report can't be a good sign, and given Citi's undervalued outlook for 2026, Citi worsened its estimates for the fourth time in two months, Marketwatch reported.

The Elliott Foundation manages more than $79 billion in assets and is known for numerous activist campaigns, and it acquired a significant stake in Southwest Airlines in 2024, was able to gain five board seats, and pushed for changes that sent the company's stock price up about 90%, the WSJ writes.

The fund also won seats on the board of directors of refiner Phillips 66, the publication recalls.

This article was AI-translated and verified by a human editor