Let's walk through the battle.
Kraken is, let's say, 40 feet away from the ship and under water, looking up at the vessel.
When the Kraken attacks, it reaches up and strikes at someone. On a miss, he'll withdraw his tentacle, no Sunder opportunity. If he hits, (which at +28 melee is very likely) he grapples, and at +44 on the Grapple check it's a fair bet he'll win that contest. Because the Kraken is a genius (21 Int) he knows the rules that say a grappled opponent is drawn into your square, so he does that. Grappled opponent is free to oppose or attack, if he happens to have a weapon in hand to attack with, one that can be wielded when grappled.
Under the Suffocation rules, the character can survive under water for one round per CON point *IF HE WAS HOLDING HIS BREATH* when immersed. That means no verbal communication, no casting of spells with verbal components, etc. If not holding his breath, or after the "one round per CON point" is finished, CON checks come into play. First one failed puts them at zero HP, and they're pretty much dead.
the entire battlefield is "Threatened" by the Kraken, so be careful with spell casting or the use of ranged weapons. That one AoO you provoke could be your last. Note that archers and spell casters seldom have a secondary, tiny weapon in hand that might give them a chance to attack and injure the Kraken.
Spell casting while grappled has a base Concentration check of 20, plus spell level, plus damage being done by the grapple. 2D8 + 12 automatic to grappled targets, so call it 21 per round. So D-Door has a Concentration DC of 45 and Teleport is worse. Plus, of course, you're casting under water, which means that you are ending any hope of "holding your breath" when you speak the verbal component of that spell.
The surface of the water blocks "line of effect" for a lot of spells, so direct damage spells are pretty much out. He's got a Fort Save of +21, a Will Save of +13 and a Reflex Save (least likely to apply) of +12.
In a straight fight by daylight, the Kraken is a bleeding nightmare of an opponent. If he attacks by night, when he can move beyond even the best Darkvision range in a single round (taking your friends with him), it's all but hopeless.
But say he decides on something other than "Hey-Diddle-Diddle, Right up the Middle" as an attack strategy. Instead it tries to use its once-per-day Control Weather to batter your ship, or to simply becalm it so it can't maneuver. Now you're a sitting duck.
He can also Dominate Animal once per day and recruit something like a Narwhale or similar creature to help it attack the ship's hull, directly. Bodies floundering the water are an all-you-can-eat buffet for someone like him.
Yeah, the arms and tentacles are relatively easy to Sunder. But you have to be in a position to attack while they're in reach. And as soon as he realizes that his opponents are using Ready Action to get a swing in he switches targets, or simply backs off until he can get a fresh round of Surprise. He has all day, and you'll run out of defensive buffs eventually.
Run intelligently, this guy is every bit as dangerous as a Dragon. Worse, in fact, since the book says that Dragons don't favor snatch/grapple attacks, and that's what this guy is made for. The theoretical "Uses 25% of resources" that's supposed to happen in an even match, (Party level v Encounter Level) isn't everyone being down 25% of their hit points. Its 25% of the party, dead.
