Private buyers weren't interested. Public investors balked at the price. The Canadian dollar was too high to lure out-of-country skiers.
Whistler Blackcomb Holdings Inc. faced all of those headwinds when its former owner looked to sell the company in 2010, an effort to recoup some money after a problematic buyout. The resort itself was profitable, but bidders struggled see the growth potential.
Five and a half years later, Vail Resorts Inc. is buying the company for triple its initial public offering price, proving Whistler Blackcomb's early skeptics horribly wrong.
Former owner Intrawest ULC shopped the resort around in 2010, hoping to slash some of the debt that private equity firm Fortress Investment Group slapped on when it bought Intrawest in 2006. After it got no bites, Plan B was to take Whistler Blackcomb public. The only problem: institutions and retail buyers showed tepid interest throughout the marketing process.
Initially, the resort was supposed go public in a $300-million deal at $15 per share. Whistler Blackcomb had to cut its sale price twice, eventually settling on $12 apiece. At that level, the dividend yield amounted to an eyebrow raising 8.1 per cent.
And even then, the shares fell during their first year of trading. Many investors assumed it was a volatile company with a lot of seasonality, meaning cash flows were thought to be overly reliant on winter skiing.
By 2014, that sentiment changed. All the worries about choppy cash flows proved to be futile, so investors started thinking of the company as more of a yield play.
Surviving two tough winters helped solidify that view. After 2013/2014 provided poor skiing conditions, the bottom all but fell out the following winter, when Western Canada faced a severe dry spell. Resorts from Vancouver to Banff suffered horribly – and it was especially troubling for Whistler Blackcomb, which generates about 85 per cent of its revenues in the winter.
However, the skiers didn't disappear. Many had booked trips before they knew what the snow would be like. And after surviving that, investors had extra confidence that the company could sustain its precious dividend.
"Since the IPO management has demonstrated its ability to sustain the cash flow/dividend through challenging economic times," RBC Dominion Securities analyst Irene Nattel wrote in a recent report, "all the while investing in on-mountain capital projects and without the benefit of a full recovery in destination visitors."
That last point is where Vail Resorts comes in. Whistler Blackcomb has already developed a plan to expand its business, largely by broadening the resort's appeal to summer tourists. This spring, the company unveiled a long-term expansion plan, named Renaissance, that will see it add a four-season mountain coaster, a water-based adventure centre and a sightseeing suspension bridge.
Its larger goal, though, is to lure more overseas tourists and skiers. At the moment, international and U.S. 'fly-in' skiers comprise only one-third of its total. On Monday, Whistler Blackcomb CEO Dave Brownlie said Vail has a global customer base and an extensive marketing engine that can boost this share – especially with the Canadian dollar so cheap relative to the greenback.
The wild card is whether the new owners will also raise prices to make even more money. Anyone who's been to Whistler Blackcomb recently may assume that simply isn't possible, because lift ticket prices are already astronomical. At the flagship Vail resort, though, they're even more expensive.
In December, CIBC World Markets analyst Mark Petrie ran a quick analysis to calculate the differential for lift ticket prices between Vail and Whistler Blackcomb at Christmas time for a family of four over ski days. Vail's cost, coming in at $2,350, was almost double Whistler Blackcomb's $1,200 in equivalent U.S. dollars.