Royal Caribbean in talks to buy Sandals at a $6 billion value; its own stock loses about $3.8 billion

Royal Caribbean Group is in talks to buy a majority stake in Sandals Resorts International in a deal that would value the all-inclusive resort chain at more than $6 billion, the Financial Times reported on Tuesday. Seeking Alpha, citing the FT, said a deal could be announced within days, and Reuters also carried the report. Neither company has announced anything.

Royal Caribbean shares were down 5.7% at $236.11 at 2:54 p.m. ET, from a $250.25 close on Monday, according to Nasdaq data.

What is reportedly on the table

According to the FT report as relayed by Seeking Alpha, the heirs of Sandals founder Gordon "Butch" Stewart would keep a stake, Royal Caribbean would become the majority owner, and it would have an option to buy the rest later. It would be the cruise company's largest acquisition. Royal Caribbean Blog, which follows the company closely, noted the FT's caution that talks could still end without a deal.

Sandals runs 20 resorts on 10 Caribbean islands, including Jamaica, Antigua, Saint Lucia, the Bahamas and Barbados, plus the family-oriented Beaches brand. Royal Caribbean chief executive Jason Liberty has said in past interviews that the company sees land vacations, places like Orlando and Las Vegas, as its real competition.

The number behind the headline: the market's verdict

The more telling figure today is what investors did with Royal Caribbean's own value. Nasdaq put the company's market capitalization at about $63.1 billion this afternoon. At that size, a drop of $14.14 a share works out to roughly $3.8 billion of market value gone in a few hours, on a report about buying a controlling stake in a business valued at a little over $6 billion in total.

It also reversed a good morning. The stock traded as high as $261.66 earlier on Tuesday, about 4.6% above Monday's close, as oil prices fell. Seeking Alpha said the deal report is what turned it lower. The day's low of $233.79 sits just above the 52-week low of $232.10, and the shares are now about 34% below their 52-week high of $356.39.

A same-day slide on a deal report is not a final judgment, and without terms nobody outside the talks knows the price per share, the financing or how much debt comes with it. But the reaction shows what shareholders were paying for: a cruise operator with high returns on its ships. Owning hotels on land is a different business, with different capital needs and, in the Caribbean, the same hurricane exposure the cruise fleet can sail away from.

Who it hits

For traders, the questions to watch are whether an announcement comes with terms, how it would be financed and whether Royal Caribbean says anything about its buyback and dividend plans. For travel agents and small tour operators who sell both cruises and Caribbean all-inclusives, one company owning both would change who they negotiate commissions with. For the islands, Sandals is one of the region's biggest private employers, and a change of control would draw attention from local governments.

Cheaper oil helps cruise lines because fuel is one of their largest costs. See our oil coverage and the crude oil chart.

Sources: Financial Times report via Seeking Alpha and Reuters; Royal Caribbean Blog; Nasdaq. Value change calculated by The Company Chronicle from Nasdaq market capitalization and share price data. This is market information, not investment advice.