"Skiing" and "downhill" go hand in hand. But the stocks of North America's two biggest ski resort operators are defying gravity.
On Monday, Vail Resorts of Colorado agreed to buy Canada's Whistler Blackcomb for $1.05 billion. The deal enables investors in the latter's November 2010 initial public offering to more than triple their initial investment and definitively beat the performance of benchmarks like the S&P 500 and its Canadian counterpart, the S&P/TSX Composite Index, over the same period.
Whistler Blackcomb's largest shareholder, the travel-and-leisure-focused private equity firm KSL Capital Partners, is also set to lock in a similarly lofty return. It snapped up a 24 percent stake in the company from a unit of Fortress Investment Group at a narrow 5.9 percent premium to its IPO price, and has already (unsurprisingly) pledged its support for the deal.
Thanks to the transaction's stock component, Whistler Blackcomb's shareholders also stand to make future profits from what will be a collective ownership of around 10 percent of Vail's outstanding shares (which rose to a new record on news of the deal).
Vail's management described the purchase as the "most strategic opportunity we could create anywhere in the world," one that will allow it to expand visitor reach while reducing the impact of variable weather (if snowfall is minimal at one resort, the powder may be great at another). Synergies include a potential boost in the sales of its "Epic" and "Epic Local" season passes, which will add Whistler Blackcomb to the roster alongside its other resorts like Vail, Beaver Creek and Breckenridge. And it's not paying an arm and a leg either, at roughly 11.2 times Whistler Blackcomb's trailing earnings before interest, taxes, depreciation and amortization, which is a discount to its own valuation of roughly 13.6 times trailing Ebitda.
Notably, Vail gave itself a pat on the back for striking the deal at a time of U.S. dollar strength against the Canadian dollar.
But the timing could have been better -- a deal would have been even cheaper if it was agreed upon back in January, when the U.S. dollar was at its highest level since 2003. Still, Vail can't be faulted for waiting to see how Whistler Blackcomb's second quarter -- its busiest of the year -- would fare (spoiler alert: it was a record). But hey, it's better now than never.
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