Pen.&Orientl Steam

Formation of New Company

PENINSULAR & ORIENTAL STEAM NAVIGATION COMPANY
29 September 1999


     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 UK and six million in
the US.  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.

Further information:          Peter Smith, Director of
                              Corporate Affairs, P&O
                              00 44 171 930 4343

                              Richard Vogel, Managing Director,
                              Arkona Touristik
                              00 49 61 02 71 20 10


Notes to editors

1.   Arkona Touristik is Germany's leading deep sea and
     river cruise operator.   It is owned by Deutsche
     Seereederei (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 £6 billion (DM18 billion).
     In 1998 it had a turnover of £5.9 billion (DM18 billion)
     and an operating profit of £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 US,
     four in the UK and one in Australia.  Its US business is
     Princess Cruises, one of the best known brands which
     includes the world's biggest cruise ship, GRAND PRINCESS,
     while in the UK 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 £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 £216 million (21% up on
     the 1997 result of £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.