Climate change a factor in Vail Resorts swallowing of big fish of Whistler
by Allen Best
WHISTLER, B.C. – Wall Street grinned Monday after Vail Resorts announced plans to buy Whistler Blackcomb for $1.05 billion. Stock in the company rose briskly from $148.31 a share to $155.46 a share. When the company went public in 1997, the stock price was $16.
In ski towns of the West, there were some groans as the continent’s biggest ski company just got bigger, forcing yet another recalculation of how to compete with Vail’s array of destination resorts and feeder ski areas, all centered around the powerful Epic brand.
Not everybody was surprised.
“There was a certain inevitability to it,” said Michael Berry, president of the National Ski Areas Association. After all, he explained, Whistler Blackcomb is the busiest ski area in North America in terms of gross skier days and volume. It did 2 million skier visits last winter, while Vail Mountain and Breckenridge usually come in at about 1.6 million.
That made it an attractive acquisition for Vail. The Denver Post noted that the sale price represents more than 11 times the EBITDA (a measure of earnings) of Whistler Blackcomb, compared to the 8 to 9 times that is typical of ski area sales.
Press releases described the purchase as a “strategic combination” but the financial press dispensed with that sweet-talking formality. It’s a sale, which company officials said they expect to close in 75 days or less. It will benefit owners of Whistler Blackcomb handsomely. Bloomberg Gadfly said investors in the company’s initial public offering in November 2010 stand to triple their initial investment and “definitively beat the performance of benchmarks” like the S&P 500 and the Canadian counterpart, the S&P/TSX Composite Index, over the same period.
The biggest single winner in the sale is Denver-based KSL Capital Partners, a rival to Vail in the Truckee-Tahoe area of California. It has a 24 percent ownership of Whistler Blackcomb.
The cliamte change factor
Chief executives from both Vail Resorts and Whistler Blackcomb emphasized diversity in their conference calls with investors. Rob Katz, CEO of Vail, has long expressed interest in improving geographic diversity. Vail already has four major ski areas in Colorado, one in Utah, and three in California, plus smaller ski areas in the Midwest and one in Australia.
To an extent, this buffers Vail from droughts. It already had some diversity, as was apparent in the last several years. The company’s resorts in the Sierra Nevada struggled in the absence of snow for several years, but its resorts at Park City and along the I-70 corridor in Colorado did reasonably well.
Adding Whistler Blackcomb to the mix gives Vail Resorts even more geographic diversity – and a stronger buffer against bad weather.
NSAA’s Berry points out that the West tends to have three areas of weather: the Rocky Mountains, the Sierra Nevada, and the Pacific Northwest (including southwest Canada). “The scenario that all three would suffer the same consequence in one season is not particularly likely, and if it did happen, the ski business would be a footnote in the grander issue,” he says.
Whistler Blackcomb has overtly acknowledged the risk of the changing climate. The base area is at 2,000 feet in elevation, less than 40 minutes from an arm of the Pacific Ocean. It always has had mid-winter rains, but a warming temperature makes them more frequent. The company sees this being a problem in coming decades despite continued and even increased volumes of snow at higher elevations.
In April, Whistler announced a $345 million plan called Renaissance, which seeks to diversify its attractions through improved mountain bike opportunities, new lifts, and other changes. The marque change is a waterpark called Watershed, to be open winter and summer—providing an attraction to non-skiers or those less-than-hardcore skiers put off by the base-area drizzle.
On Monday, in the conference call, Whistler CEO Dave Brownlie mentioned the prospect of “more volatile” weather over the long term, a nod to climate change predictions. He also cited Vail’s resources and marketing exposure as being reasons why this makes sense for Whistler. Whistler, he emphasized, had been doing well before and was not forced into looking for a suitor. In fact, he said, Vail courted Whistler.
Another element of diversity in this deal involves the difference in value between the U.S. dollar and the Canadian dollar. The U.S. dollar has been uncommonly strong during the last several years as compared to the Canadian dollar, nicknamed the loonie. On Monday, the loonie was trading at 76 cents against the U.S. dollar. Take your American bank account to Vancouver and you’ll feel rich—as long as you don’t buy real estate.
For a skier from Australia or New Zealand or even Mexico, points out Berry, this makes Whistler a more attractive proposition than a resort in the U.S. Whistler also has historically draw Japanese skiers and lately has been nurturing interest from China.
The differential in dollars matters in this way, too: Unless the U.S. dollar plunges in value quickly, Vail Resorts is buying Whistler Blackcomb at a deep discount.
“There’s nothing not to like about Vail Resorts stock right now,” says Berry. “With the products they have and the different locations they have, I don’t see this waning any time in the foreseeable future.”
They’re not done yet
In Steamboat Springs, Chris Diamond credited Vail Resorts with a move that will help secure loyalties to its Epic Pass in the Seattle and Vancouver markets. But he sees other destination resorts sailing along as before, adjusting their routes somewhat, but not being knocked over by the latest case of Vail getting even bigger.
“The financial chapter has yet to be written clearly,” said Diamond, who retired in 2015 as chief executive of Steamboat. Taking the broader view, he pointed out that the ski industry has a flat to slow-growing base. Individual ski areas have – for the most part – neither gained nor lost market share over the years. There are exceptions, he added, one of them being the explosive growth of Beaver Creek 15 to 20 years ago.
Other ski area operators will have to adjust their products, as they have in the past.
“I think it certainly hasn’t been a game changer yet,” Diamond said of Vail Resorts’ expanding empire. “Time will tell. They’re not done.”