Investing in Whistler

Speculation and hype are normal around IPOs, as promoters drum up interest. But usually it's heard on Howe Street, Bay Street or Wall Street. Last week's confirmation that Whistler Blackcomb is going public has spurred lots of talk on Village Stroll.

With the IPO expected in early November there is little time to debate the merits of the community investing in Whistler Blackcomb or to create a holding company that would own the shares. The concept has been talked about for years but it hasn't gone any further than talk.

Still, speculation is half of investing, so what are the possibilities for the Whistler community?

In theory, the Whistler 2020 Development Corp., the arm's-length municipal development company that oversaw construction of the athletes' village/Cheakamus Crossing could be the community's investment vehicle. The municipality secured a $100 million loan from the Municipal Finance Authority of B.C. to build the athletes' village and WDC managed the money as the neighbourhood was built. It wasn't a risky loan as sales of the townhomes and houses are allowing the municipality to repay the loan over three or four years.

There are reported to be 37 million shares of the new Whistler Blackcomb Holdings Inc. No single investor will be allowed to buy more than 10 per cent of the shares. So, assuming the community saw value in owning 10 per cent of Whistler Blackcomb Holdings, 3.7 million shares at $14 each would cost nearly $52 million. That's about half the community's investment in Cheakamus Crossing but with a much, much longer return on the investment.

Where would Whistler get $52 million? It would be an unusual request of the Municipal Finance Authority, which generally provides loans for infrastructure projects. And that raises an interesting question in itself: would purchase of shares in Whistler Blackcomb Holdings be seen as a stock market investment or an investment in community infrastructure? The whole premise of the community investing in Whistler Blackcomb is that the operation of the mountains is an essential part of Whistler, but whether lenders would see it that way is unclear.

The Municipal Finance Authority, of course, isn't the only lender out there. Banks and credit unions might be interested in partnering with Whistler, but borrowing $50 million for an investment is something that probably needs to go to a public referendum. There's little time to debate the merits of Whistler Blackcomb Holdings before it goes public, let alone hold a referendum.

However, Whistler may not be the only government that sees value in owning a piece of Whistler Blackcomb. The provincial government was heavily involved in creating Whistler and understands the importance of Whistler to provincial tourism - an industry the Liberal government still expects to double in size by 2015. It would be politically difficult for the province to announce it was investing in Whistler Blackcomb after all the money that went into preparations for the Olympics. Other ski areas in B.C. would ask for similar investments.

But if the province sees real value in returning some portion of ownership in Whistler Blackcomb to B.C. it might be interested in holding 10 per cent of the company until a local entity was ready to buy the shares. Interestingly, on Wednesday the province announced it is considering amendments to the Business Corporations Act that would allow for a new hybrid type of company, the community interest company, "structured to both benefit the larger community and allow limited investor returns within the context of a traditional for-profit company."

But it comes back to the basic question of what is the value for the community in having a stake in Whistler Blackcomb. From a financial perspective it's a conservative, small cap investment. It's been well documented that Whistler Blackcomb is a mature company with little growth expected. That means the share price will be fairly stable, assuming fundamental factors stay in place: snow continues to fall in the winter, the Lower Mainland/Seattle market (Whistler Blackcomb's core market as explained in the prospectus) continues to come to Whistler and senior management remains in place. The company's ability to reinvest - replace aging lifts and other infrastructure - would be another consideration.

A less-measurable analysis would be pride of ownership. It's very easy to complain about Whistler Blackcomb when the owner is an investment fund based in New York. It's different if the community owns a piece of it.



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