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While American Skiing Co. Has Steadily Crumbled,
Vail Resorts Has Steadily Soared
By Jason Blevins, The Denver Post
Knight Ridder/Tribune Business News 

Mar. 27--Vail's going to California, and Steamboat isn't going anywhere. 

In a twisting tale of ski resort finagling, Vail Resorts on Tuesday announced that it would buy the 4,800-acre Heavenly ski area south of Lake Tahoe -- its first non-Colorado ski hill. At the same time, Heavenly's seller, bedraggled and debt-saddled American Skiing Co., backed out of its deal to sell Steamboat on the day the sale was scheduled to close. 

"We were actually in the closing room and waiting for them to come down and instead of them coming, they gave us a phone call," said a disappointed Tim Mueller, the Vermont ski resort operator who led the group that was buying Steamboat for $91.4 million. "We were ready to close the deal. Let's just say we are talking with our attorneys to determine the appropriate action." 

Vail Resorts will pay between $96 million and $99 million -- depending on how fast the deal can close -- for Heavenly, where ski slopes straddle the California-Nevada state line and a new $25 million year-round gondola stretches into the timeshare- and casino-flanked avenues of South Lake Tahoe, Nev. 

American Skiing Co., a one-time rival of Vail Resorts that has plummeted from grace under crippling debt, is selling the resort for a big loss. In 1997, the growing company picked up Steamboat and Heavenly for $288.3 million, leaving industry jaws agape. 

If American had gone through with the sale of Steamboat for $91.4 million, the company would have sold both resorts for $100 million less than it paid in 1997. 

While American has steadily crumbled, Vail has steadily soared. 

Both companies went public around the same time in late 1997. Vail went public at $24 a share, and its price reached $21 a share Tuesday. American stock hit the shelves at $18 a share. It was recently delisted from the New York Stock Exchange when it fell below 25 cents a share. 

American's lenders studied the proposed Steamboat sale and the Heavenly sale and decided the Heavenly deal more closely matched the struggling company's plan to climb out of the hole, American chief executive B.J. Fair said Tuesday. 

It's not as simple as the $8 million or $9 million difference in price separating both offers, Fair said. He also said that the lenders, despite a desire to shave down American's debt load of more than $400 million, recognized the need for American to keep Steamboat. 

"The banks realized that the sale of both resorts was not necessarily in the best interest of the company," said Fair, who addressed Steamboat employees late Tuesday, promising that the resort would not be sold. "We are not looking for a buyer. We want to get out of transaction mode and focus on our business." 

American is prepared to pay Tim Mueller break-up fees for killing the deal, said Fair, who declined to comment on the potential legal ramifications of quashing the Steamboat sale. 

Where American paid premium prices, Vail Resorts has waited for the discount sales. Waiting for Heavenly, Vail's patience paid off in spades, with a price slightly more than six times the resort's annual cash flow, which is expected to fall between $14.5 million and $16 million this year. 

Most resorts are valued and sold based on nine times annual cash flow. Vail Resorts is valued on Wall Street at about eight times its annual cash flow, which is about $150 million. The company is carrying about $400 million in debt. 

"This is a huge deal for Vail," said Stacy Forbes, an analyst for Denver-based Janco Partners who estimated Vail's 1997 purchase of Breckenridge, Keystone and Arapahoe Basin at eight to nine times each resort's cash flow. 

"They are in very good financial position to pursue acquisitions," said Hayley Kissel, a leisure analyst for Merrill Lynch. 

Vail's chieftain, Adam Aron, said Tuesday that his company has five times the cash needed for the purchase. 

Vail also has a new $421 million credit line it has yet to tap and the ink is still damp on the company's recent high-yield bond issue. All that money is ready despite Vail's having spent more than $225 million in the past year for a host of upscale hospitality acquisitions such as the Rockresorts hotel chain, the Vail Marriott hotel and the Ritz Carlton at Rancho Mirage in Palm Springs, Calif. 

Tough snow years in 1998 and 1999 prodded Vail Resorts into the hospitality and real estate business. The company has whittled its reliance on lift tickets to less than 25 percent of its total revenue and lodging has climbed to more than 30 percent of its total annual revenue. 

The company's real estate business is booming and there are plans in the works for more than $500 million in upgrades to the dated base villages at Vail Mountain. 

At Heavenly, Vail is promising to pump $40 million into the mountain in the next four or five years, bringing it up to what Aron called "the Colorado standard." That money will not go into limited real estate opportunities around Lake Tahoe but will help revamp Heavenly's aged lift network and its inadequate food and beverage service, Aron said. 

"Can you imagine how successful it would be if we could take those antiquated facilities and bring them up to the high standards that we are used to at our existing resorts?" said Aron, projecting that Vail will see a Heavenly-fueled bump in its cash flow as soon as this summer. 

In the past year, American has been the antithesis of Vail. The struggling resort operator last year shed its Sugarbush ski hill in Vermont and last month negotiated a sale of Steamboat ski area. It sold development rights along the $25 million gondola it built at Heavenly to Marriott's timeshare wing. 

American also has jettisoned its spendthrift leader Les Otten and is now bleeding under staggering debt, most of which was incurred by Otten when he grew a fledgling resort business into an empire using borrowed money. 

Most of those loans soon will be due. That's why American has offered Vail a $3 million carrot for a speedy closing. American is borrowing millions -- financed at rates as high as 17.5 percent -- simply to pay interest on additional loans. 

Without a quick sale of a resort and some quick cash, American was predicting default by the end of the month.

"The failure to consummate a transaction that will enable us to significantly reduce our leverage may have significant adverse effects on our future liquidity, operating performance and results," the company wrote in last week's quarterly report to the Securities and Exchange Commission. 

-----To see more of The Denver Post, or to subscribe to the newspaper, go to 

(c) 2002, The Denver Post. Distributed by Knight Ridder/Tribune Business News. MTN, SKI, 


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