Isadore Sharp, who has made a career of building Four Seasons Hotels Inc. into a world-leading luxury brand, is ready to entrust the result of his life's work to a Saudi prince and the world's richest man.
Mr. Sharp, 75, who founded his hotel chain in 1961 on a modest site on Toronto's Jarvis Street, said yesterday he wants to take Four Seasons private with an $82-a-share (U.S.) bid that will hand 90 per cent of the hotel business to Bill Gates and Prince al-Waleed bin Talal, a long-time investor and business partner.
Mr. Gates will hold his stake through his investment firm Cascade Investment LLC, which along with the Bill and Melinda Gates Foundation are also major holders of Four Seasons shares. The prince will make his investment though Kingdom Hotels International.
The surprise offer, which values the company at $3.4-billion, excluding debt, will put two of the world's wealthiest individuals in control of a chain that manages 71 luxury hotels in 31 countries.
Mr. Sharp will remain as chairman and chief executive officer, and his family firm, Triples Holdings Ltd., will retain a 10-per-cent stake through special voting shares. These give Mr. Sharp special rights on key issues, including any plans to relocate Four Seasons' Toronto head office, documents filed yesterday show. Mr. Sharp will also receive $288-million under a long-term incentive plan established in 1989.
The offer represents a 28-per-cent premium above the closing price Friday and is, Mr. Sharp said, the only deal he will support. Four Seasons shares jumped $20.95 (Canadian) to close at a new high of $93.06 on the Toronto Stock Exchange, slightly above the bid's value.
"As the founder of Four Seasons, I am passionate about preserving the wonderful company we have created," Mr. Sharp said on a brief conference call. He said the planned privatization will mean a change only in the ownership structure. The leadership, strategy and direction of Four Seasons will stay the same. "This transaction is intended to ensure the legacy of Four Seasons."
Indeed, Mr. Sharp characterized the sale as a way for him to oversee a shift in ownership while he remains in charge. "A change of ownership of Four Seasons was ultimately inevitable because some day my children would have needed to sell," he said.
Mr. Sharp said the idea of a sale as a way to manage the inevitable change of ownership was first proposed several months ago by an individual who knew the company.
Discussions with Cascade and Kingdom began in early June, company filings show. Four Season's code-named the potential sale Project Jazz, apparently signalling Mr. Sharp's new tune for the hotel chain, said one source familiar with the talks.
Mr. Sharp's priority, sources said, was to find high-calibre investors that shared his commitment to Four Season's position as one of the world's most admired luxury hotel operators. "He realized that he's not immortal and his family is not taking over so why not put his company in the hands of people with this kind of stature at a time when he can oversee the transition," one person said.
The prince, who for more than a decade has been a trusted business partner to Mr. Sharp and holds 22 per cent of Four Seasons, was an obvious choice. Mr. Gates is more of a surprise.
The deal, if approved by shareholders, will be the third privatization of a major Canadian-owned hotel chain in less than a year and the second involving Kingdom, which, along with Colony Capital, bought Fairmont Hotels & Resorts earlier this year. Resort operator Intrawest has also been taken private.
Bill Stone, executive managing director for Colliers International Hotels, said the wave of privatizations is the latest evidence of the huge amounts of private money that are chasing real estate investments. "They've looked at every office complex and shopping centre. What is left? Hotels."
Indeed, one source familiar with negotiations said a force driving the sale was Mr. Sharp's growing conviction that Four Seasons could profit by acquiring valuable property surrounding many of its hotels. The real estate ambitions mark a reversal of Four Seasons long-standing strategy to manage hotels rather than own the real estate. One person close to the company said Mr. Sharp was frustrated that other real estate investors were making substantial profits off of property by leveraging the prestige of the Four Season's brand to attract blue-chip clients to adjacent buildings.
Mr. Sharp "felt that he didn't have the flexibility as a public company with quarterly results targets to make big long-term investments in real estate. Opportunities were being lost and he wanted to do something," one person involved in the discussions said.
It is understood that negotiations broke down several times over the summer because Cascade and the prince did not share Mr. Sharp's lofty assessment of the value of his controlling stake, held through multiple voting shares. The three sides overcame their impasse in the fall when they agreed on an arrangement that gives Mr. Sharp a strong voice in Four Season's major decisions, even though he is yielding voting control.
Yesterday, most analysts said they expect the deal to be completed. A special committee has been established to consider the bid and the transaction requires the approval of two-thirds of votes cast by shareholders and the majority of the limited voting shareholders excluding Kingdom and Cascade.
Paul Moroz, an analyst at Calgary-based Mawer Investment Management Inc., expects his firm will vote in favour of the bid. "This is a decent deal," he said.
Mr. Moroz doesn't believe there will be any kind of bidding war because the current offer has management on its side. "There is already a good premium," he said.
They're with Issy
Four seasons founder Isadore Sharp's business partners include some of the world's biggest names.
Bill Gates
chairman Microsoft Corp.
The software mogul, who holds a 2-per-cent stake in Four Seasons Hotels through his investment company Cascade Investment LLC, owns the public areas of Four Seasons Resort Whistler. His private foundation also owns a 6-per-cent stake in the luxury chain.
Michael Dell
chairman Dell Inc.
The Texas computer billionaire, who bought the Four Seasons Resort Maui in Hawaii in 2004 through his investment firm MSD Capital LP, also added the Four Seasons Resort Hualalai to his portfolio last summer. Mr. Dell bought this second Hawaiian resort with Rockpoint Group, a global investment management firm.
Ty Warner
chairman Ty Inc.
The Beanie baby magnate owns the Four Seasons New York and also the Four Seasons Resort Santa Barbara, which has undergone extensive renovations to restore the property to its glorious 1927 Spanish roots. The two properties are controlled through his investment company, Ty Warner Hotels & Resorts LLC.
David Thomson
chairman Thomson Corp.
The Thomson family's investment holding company Woodbridge Co. Ltd. owns the Four Seasons Resort Jackson Hole in Wyoming and Four Seasons Silicon Valley in East Palo Alto in California.
Prince al-Waleed bin Talal
The prince, who owns about a 22-per-cent stake in Four Seasons Hotels Inc., directly or indirectly has interests in nine operating Four Seasons properties. In North America, he owns Four Seasons Toronto (in addition to a new hotel development slated for Toronto) and the Residence Club Scottsdale in Arizona. .
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