Heavenly ends talks on merger
Heavenly Ski Resort’s parent company abandoned Friday the proposed merger announced three months ago with hotel manager MeriStar Hotels and Resorts, amid concerns American Skiing Company would be unable to secure the necessary financing to operate the combined company.
Despite the withdrawal, ASC management said the Grand Summit Resort Hotel at Heavenly is still on track.
“With the recent changes in economic conditions and their resulting impact on the financing necessary to operate the combined company, each company has reached the conclusion that pursuing operations on a stand-alone basis is more attractive to its shareholders than consummation of the merger,” ASC Chairman Les Otten stated.
When the deal was announced Dec. 11, American Skiing planned to buy MeriStar for stock valued at $185 million.
The Newry, Maine-based ski area operator stood to benefit from MeriStar’s organization and structure, with the intention of expanding into more of a four-seasonal business.
But in all reality, ASC’s management expressed a current theory that a lodging business can be as seasonal as a ski operation. Spokesman Skip King said the pull back from the deal had nothing to do with the notion the ski resort operator didn’t need MeriStar anymore, while coming out of a prosperous winter season.
ASC operates ski resorts in Killington, Sugarbush and Mount Snow, Vt.; Park City, Utah; Sugarloaf, Maine; Attitash Bear Peak, N.H.; Steamboat, Colo.; and Heavenly in South Lake Tahoe.
King said the Heavenly Gondola took in more than 10,000 visitors during the Christmas holiday alone.
“Are we having a better season than last year and the year before? Yes. But that’s not the reason why (the companies withdrew),” King said, adding the deal wasn’t conducive to their company plans given the current economic conditions.
“We’re probably better off with our stand-alone growth strategies,” he said.
Once interested in buying into the ski resort’s growth potential, the Washington, D.C.-based hotel operator’s management agreed.
“Given the slowdown in the economy, we believe it is more prudent for us to continue to focus on our core business of operating hotels, rather than consummate the merger,” MeriStar Chairman Paul Whetsell said.
Whetsell blamed “adverse conditions economic conditions” for hindering the influence of capital markets.
MeriStar Hotels and Resorts, under the auspices of MeriStar Hospitality, runs 230 hotels and 11 golf courses. The company pledged $25 million to the Grand Summit project due for completion by the fall of 2002.
At the time the proposed merger was announced, Otten had indicated that $40 million in real estate debt must be reduced before any further construction can begin.
So ASC is evaluating other financing options to stay on schedule with the Heavenly Grand Summit project, which reports $97 million in bookings. That’s $1 million more than what was reported three months ago.
Meanwhile, the company expects to reap the rewards of the Lake Tahoe ski resort’s gondola project as well as its sister hotel at the Canyons in Utah. This time-share condominium resort has reported sell-out weeks.
But in February, changes in the companies’ stock exchange ratio and MeriStar Hotels and Resorts management contracts with its parent MeriStar Hospitality as reported in the Wall Street Journal may have tipped the scales of negotiation.
And according to recent Dow Jones financial reports, ASC experienced a recent credit rating cut that could have hampered its ability to raise necessary funding.
“Obviously, they were going to have to borrow the money (to complete the deal),” Brookstreet Securities Corporation Financial Consultant Cheryl Sillings said. “After they announced the deal (in December), the stocks cratered. And they were banking on the stock price bailing them out, but now the credit rating bottomed out. That’s a double whammy.”
In late trading Friday, American Skiing shares increased 37 percent to $1.55, while MeriStar shares edged up 1 percent to $1.81.
Sillings believes a favorable earnings report following this year’s ski season could help turn around its financial standing, shareholder confidence and sagging stocks that have fluctuated between $1 to $4 in the last year and a half.
“There are all kinds of things they can do,” she said, listing the pursuit of bond buyers for starters.
Following this latest announcement Friday, both companies canceled their shareholder meetings.
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