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VR sale still ‘serious’ possibility

Staff Reports

Forget about betting on the Olympics: The real action this summer is all about laying odds on who’s going to buy Vail Resorts. Or is it even still for sale, and if so, who’d want it? And why?After a sale to two potential suitors fell through in early August, prognosticators from Wall Street to Bridge Street are holding their fingers to the wind to see which way fortunes may be blowing. The consensus is a unanimous “who knows?” with a qualifier attached: VR is almost certainly worth more broken up than it is as a whole, so if it sells it likely won’t resemble its current configuration.”I think they’re serious about it (selling),” said William Marks, an analyst at JMP Securities in San Francisco. “It’d most likely be someone interested in the real estate, so I could see that portfolio being broken up and sold off.”Salim Hajif, a Denver-based financial writer, agrees with the breakup idea, and noted that with VR’s $635 million debt, the true cost of acquiring it would be around $1.2 billion.”That’s pretty rich,” Hajif said. “My view is that they’re looking to break it up, sell the lodging assets to a lodging company and then either continue to operate the ski resorts or sell them off to another operator.” In a column for the Motley Fool investor website, Hajif suggested possible suitors for VR’s real estate assets could be Starwood, Marriot, Hilton, Four Seasons or even Disney.The ultimate goal, Hajif, said, would be unlocking the value of those real estate assets. Regardless of how locals and fans of VR ski areas may feel about the ski hills, the bottom line, said Marks, is value for investors when one is talking about a publicly traded company.”They’ll sell it because they want to make money for investors,” Marks said. “Apollo has owned those shares for a long time and it’s exploring options. Selling is one of them.”Apollo Advisors is the New York investment firm that brought VR public in 1997.Marks added that his firm believes VR stock shares will increase in value from the current $17 range to more than $24 per share by the end of next year. Most of that would be driven by an increase in the value of the real estate.Bridge StreetMerv Lapin of Vail Securities Investment said he’d ultimately like to see the ski resorts owned by a private or nonprofit company, although he said that didn’t appear a likely outcome of any upcoming sale.”I’ve never been in favor of Vail Resorts being a public company,” Lapin said. “I’d rather see it owned by a non-profit organization made up of people who have the long-term interests of the town at heart.”Lapin said he thinks the market bears that out, as VR stock has never matched its initial price of $22. But he also noted that one of the reasons VR may be more attractive to a buyer is the way the company has added to its portfolio of real estate properties over the past few years. The upcoming redevelopment of the Lionshead base area doesn’t hurt, either.”I think the Lionshead redevelopment is the main reason people are interested in buying VR,” he said. “There’s a lot of potential for all that real estate at premium prices.”Ultimately, the identity of a buyer for VR comes down to financial or operational, according to analyst Dennis McAlpine of McAlpine Associates in Scarsdale, N.Y. That is, someone with either very deep pockets or somewhat deep pockets combined with experience running a ski resort. Dismissing the notion of the other two big ski players (Intrawest and American Skiing) getting involved, McAlpine said that leaves a financial buyer.”The only way it would make sense for a financial buyer is if they think they can pay for it by revenue generation,” McAlpine said. “That means either improving cash flow or selling assets.”As Hajif noted, significantly improving cash flow in a business as volatile as the ski industry is not likely.”It’s not a great business, it’s up and down a lot,” Hajif said. “So it’s not necessarily conducive to a publicly traded company, especially when the average investor is not terribly patient.”Where all this leaves the future of VR is anyone’s guess, since a bonafide buyer has yet to surface and the sellers aren’t talking (a Vail Resorts spokesperson said the company won’t comment on any of the speculation regarding a potential sale). And while JMP’s Marks says they think the stock will rise significantly, Lapin says he thinks it will have to drop to $14 a share to generate a buyer.So how would this affect the average local or skier? In Breckenridge, residents are not unused to the notion of the ski area changing hands, as has happened several times in the past few decades. Even so, some may not be thrilled at the thought of having to deal with yet another corporate overlord one that will likely know a great deal less about running a ski area than VR.”The town has undergone a very long process with VR related to the proposed gondola and other improvements, so there’s certainly a concern that a new owner could change things,” said Jeffrey Bergeron, a long-time Breckenridge local recently elected to the town council. “There’s a comfort level dealing with the current management, and some fear that a new owner could mean new people we don’t like.”Even so, Bergeron said there’s a spark of curious optimism that a change of management could be interesting.”It’s like, VR’s OK, but we wonder what it’d be like with another player,” he said.Addressing the notion of an asset break-up, Bergeron said one of the rumors floating around is that the town could maybe buy the ski area.”But then who knows if anyone would know how to run it,” he said.Breaking up may be hard to do, but it can be lucrative. The process may already be under way, with the Denver Post reporting recently that Vail Resorts Development Company is selling nearly $20 million worth of real estate in Jackson Hole. VT By Alex Miller


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