Royal Caribbean pays $3 billion for half of Sandals; two days of selling have cost it about $6.2 billion

Royal Caribbean Group said on Wednesday it has signed definitive agreements to buy a 50% equity interest in Sandals and Beaches Resorts for a base price of about $3.0 billion in cash. The company said in a Form 8-K filed with the SEC that Morgan Stanley has committed debt financing for the deal, which is expected to close in early 2027.

Investors kept selling. Royal Caribbean shares were down 3.3% at $227.21 at 11:51 a.m. ET, after touching $222.22, according to Nasdaq data. That is below the $231.03 low Nasdaq lists for the past 52 weeks.

What the company actually agreed to

According to the press release attached to the filing, the two sides are forming a joint venture in all-inclusive resorts. The price represents "a forward EBITDA multiple of approximately 10x," and the company expects the deal to add to earnings next year. The venture will be run by a board under the shared leadership of Royal Caribbean chief executive Jason Liberty and Sandals executive chairman Adam Stewart, son of founder Gordon "Butch" Stewart. Existing bookings, loyalty programs and resort operations continue as they are.

That is a different deal from the one the market sold on Tuesday. The Financial Times had reported that Royal Caribbean was close to a majority stake in a deal valuing Sandals at more than $6 billion, with an option to buy the rest, as we reported yesterday. The valuation held up: $3 billion for half implies about $6 billion for the whole business. The control did not. At 50%, with shared leadership on the board, Royal Caribbean is a co-owner, not the owner. The release does not mention an option on the other half.

The number behind the number

Two figures in the release let a reader size what is being bought. If the roughly 10x multiple applies to the implied $6 billion value, Sandals and Beaches are expected to produce around $600 million a year in earnings before interest, taxes, depreciation and amortization. Royal Caribbean did not disclose how much debt Sandals carries, so if the multiple is measured on enterprise value, the expected EBITDA figure would be higher. Either way, Royal Caribbean's share of it would be about half.

Now set that against the stock. Nasdaq put Royal Caribbean's market value at about $60.7 billion this morning, which works out to roughly 267 million shares at today's price. The shares closed at $250.25 on Monday, before the FT report. At that price the company was worth about $66.9 billion. The two-day drop of about 9.2% has taken away roughly $6.2 billion of market value, more than the implied value of all of Sandals, for a half stake that costs $3 billion.

A share price move is not a verdict on the deal alone. Cruise stocks also trade on oil, and oil prices rose on Wednesday after a five-day slide, which raises fuel costs for the fleet. But the stock was already about 36% below its 52-week high of $356.39, and investors have now reacted twice, once to the rumor and once to the terms, the same way.

Who it hits

For shareholders, the new questions are about the balance sheet: a $3 billion cash purchase funded with new borrowing, at a time when the 10-year Treasury yield has climbed above 5%. The company has not yet said what the financing will cost or whether it changes its buyback and dividend plans. For travel agents who sell both cruises and Caribbean all-inclusives, the release says the companies will look at broader distribution and making both portfolios easier to book, which is where commission terms could change. For the islands, Sandals said reservations and operations continue as usual.

Related: stocks coverage, the crude oil chart and the 10-year Treasury chart.

Sources: Royal Caribbean Cruises Ltd. Form 8-K and Exhibit 99.1, SEC EDGAR; Nasdaq. Implied valuation, implied EBITDA and market-value change calculated by The Company Chronicle from the company's stated terms and Nasdaq price and market capitalization data. This is market information, not investment advice.