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Time for Whistler's own strategic review of Intrawest

A couple of weeks ago Intrawest announced it was hiring Goldman, Sachs & Co. and launching a strategic review of its operations.
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A couple of weeks ago Intrawest announced it was hiring Goldman, Sachs & Co. and launching a strategic review of its operations. Officially, the company that owns Whistler Blackcomb was looking at all options that may enhance shareholder value and fund future growth, including partnerships, mergers and "other business combinations." Intrawest denied it was selling all or parts of the company.

Meanwhile, the business pages have been reporting the aggressive, some would say predatory, actions of Pirate Capital LLC, a Connecticut-based hedge fund. Pirate Capital, now the largest single shareholder of Intrawest stock, was rumoured to have been preparing a hostile takeover bid at last fall’s annual general meeting.

Intrawest has long "suffered" because the stock market has never figured out whether it’s a real estate development company or a tourism operator. If it’s in the real estate development business, some say, the stock should be worth more, based on the assets the company has. But the operation of ski and golf resorts drags the share price down below what Pirate and some other shareholders think it should be.

According to the Vancouver Sun, Pirate Capital started buying shares of Intrawest about 18 months ago, paying about $135.5 million over that time to acquire nearly 5.8 million shares, an average of about $23.40 US a share. Pirate bought another 150,000 shares last week, at $4.7 million, or approximately $31.40 US per share, and now controls 12.1 per cent of the company.

Pirate believes Intrawest shares should be valued at $45. Stock closed up Monday, after the announcement of the sale of real estate holdings at Mammoth, at $32.46 US a share. If the stock reaches $45 Pirate, based on its current share holdings, would stand to make $125 million US.

Pirate Capital believes there are numerous potential bidders who would pay a substantial premium to gain control of Intrawest. In a March 1 letter to the board of directors Pirate’s Stephanie Tran wrote: "We urge you to fulfill your fiduciary duties to all shareholders by immediately initiating a sale of the entire company."

So, whether it’s because of pressure from Pirate, or perhaps just because it’s time to re-evaluate things, Intrawest is undergoing a structural review. That includes an inventory of all assets and their value, based on the company’s plans and, perhaps, based on how the stock market perceives those assets and the company.

This week’s sale of Intrawest’s majority interest in real estate holdings at Mammoth to Starwood Capital Group doesn’t necessarily signal the beginning of the end, as it follows on last year’s sale of majority interest in Mammoth resort operations to Starwood.

Intrawest also retains a 15 per cent stake in the Mammoth real estate and will act as development manager and marketing manager for the village being built there. This, the company says, is part of its plan to evolve into an expertise-driven business model.

The stock market and the fate of big corporations are not generally a major topic of conversation around Whistler, but in this case maybe they should be.

Whistler Blackcomb, the unimaginatively-named entity that operates the facilities on those two mountains, is only a part of Intrawest but it is a significant part, both historically and currently.

Historically, Blackcomb was Intrawest’s entry into the ski business, when Intrawest bought out the Aspen Ski Company, then owned by 20th Century Fox, and its 50 per cent interest in Blackcomb in 1986. The foundation of that deal was Blackcomb’s Hugh Smythe and Intrawest’s Joe Houssian meeting through the Young Presidents Organization. At the time Intrawest was an urban real estate development company, but by the early ’90s the company had decided to focus solely on resort development and operations.

Currently, Whistler Blackcomb is still the flagship operation among the 10 North American mountain resorts Intrawest has a stake in. For several years the profits made by Whistler Blackcomb were used to prop up other mountain resorts that didn’t perform as well as expected.

The skiing, snowboarding and related facilities offered on Whistler and Blackcomb mountains are still the reason most people come to Whistler in the winter. And if that doesn’t impress you, imagine for a second what Whistler would be like if it was primarily a summer resort.

On another level, Whistler Blackcomb is also one of the key "partners" in Whistler – at the table and involved in almost every major decision, from the board of Tourism Whistler to the Olympics; from the Comprehensive Sustainability Plan to retailing and real estate development.

And, despite some misgivings, Whistler Blackcomb has been a pretty reasonable partner. The senior managers live here and care about the community, which is not always the case with large companies.

If Intrawest was broken up and pieces sold off, Whistler Blackcomb would be one of the jewels; there would be no shortage of interest in buying the company. But a new owner’s interest in and understanding of the community of Whistler might be another matter.

So, while Goldman Sachs does its strategic review of Intrawest, maybe it’s time the community of Whistler did a strategic review of its relationship with Whistler Blackcomb. Could that partnership become something more?

Whistler Blackcomb, while responsive to the community’s needs, ultimately has to answer to Intrawest and its shareholders. Maybe the community of Whistler should become a shareholder in Whistler Blackcomb. Not just because it would be a sound financial investment, but because it would be an investment in the community’s future.