The vote in April to take Four Seasons private could not have had a more dramatic buildup and finish if it had been scripted by Hollywood. There was a cast of larger-than-life characters, including Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud, a blue-blooded Arab who has built an enormous global empire with business smarts and connections to Saudi Arabia's royal family. His partner in the proposed US$3.8-billion transaction was Microsoft Corp.'s Bill Gates ? the world's richest man, worth an estimated US$56 billion, whose Windows operating system is a cornerstone of the Internet revolution.
When it came time for the vote, the result was a cliffhanger. The buyout group, led by Four Seasons' chairman and CEO Isadore Sharp, needed approval from two-thirds of all limited voting shares, and a simple majority of the same shares held outside the takeover consortium, known as FS Acquisition Corp. In the end, the deal was backed by 69% and 51.9% of shares in the two respective groups ? a whisper above the bare minimum required for the company to be delisted in New York and Toronto. When the results were read aloud in the Tudor Room of Four Seasons Toronto, located in the city's fashionable Yorkville district, there was an audible gasp that virtually sucked the air out of the windowless conference hall.
“I was surprised by the push back,” says analyst David Katz with New York-based CIBC World Markets. Four Seasons was already trading at stratospheric price-earnings multiples as compared to most other hotel companies before FS Acquisition offered US$82 a share ? a 28.4% premium over its closing price on Nov.3,2006 prior to the announcement. Analysts agree it was a rich offer, but Four Seasons ? which has a portfolio of 74 luxury and resort properties in 31 countries ? is to the international hotel business what Enzo Ferrari is to cars and what Chateau Pétrus is to wine. When you want the world's best brand, you had better be prepared to pay for it. “Marsico probably wanted a higher price,” says analyst Smedes Rose with Calyon Securities (U.S.) in New York, referring to Marsico Capital Management LLC of Denver, Four Seasons' second-biggest shareholder after Prince Alwaleed's Kingdom Hotel Investments, with 17.5% of outstanding shares. Retail investor Stan Klees, who bought into Four Seasons' IPO decades earlier, also had qualms. “I would have liked to see a better price.”
The proceedings surrounding the vote at Four Seasons must have had an almost eerie sense of déjà vu for Klees because a year earlier just down the street, a similar vote took place at the Fairmont Royal York to privatize Toronto-based Fairmont Hotels & Resorts Inc. (Klees was also a shareholder of FHR.) The transaction value was nearly the same: US$3.9 billion versus US$3.8 billion for Four Seasons. And the takeover premium built into the US$45-a-share offer was virtually identical: 28% versus 28.4%. Even the kingpin was the same. In this instance, Prince Alwaleed partnered with Colony Capital, a private Los Angeles based company owned by real-estate mogul Tom Barrack, to take out FHR.
In the space of 12 months, Canada's two top hotel companies have been scooped up by international capital, and rolled into Prince Alwaleed's empire, which includes large investments in Citibank, Disney and AOL. The 50-year-old prince declined any comment, but Charles Henry, who manages his hotel investments in North America and Europe through New York based Hotel Capital Advisers Inc., says Four Seasons and FHR (whose parent company is now Fairmont Raffles Hotels International Inc.) represented extraordinary value. “If you have the right brand and management, real estate investments are less risky and more profitable,” he says. What does that say about Canada's ability to run global companies, at least in the hotel business? Perhaps in the final analysis, Four Seasons and FHR became too successful to remain Canadian. Over the years they morphed into magnets for the rich and famous who covet luxury brands not only because they are good investments, but also because they enhance their personal status.
Even before Prince Alwaleed decided to buy Four Seasons, he had a 22% stake in the company, and had poured hundreds of millions of dollars into 12 Four Seasons properties, in which he has a 15-to-100% interest. Bill Gates owned a 2% stake in Four Seasons through Cascade Investment LLC, the company that manages his personal fortune, along with an interest in the Four Seasons Resort Whistler in B.C. Other examples of celebrity tie-ins include Michael Dell, founder of Dell Inc., who owns two Four Seasons properties in Hawaii; Sheikh Sultan bin Khalifa Al Nahyan of Dubai, owner of a Fairmont hotel in the United Arab Emirates; and tennis stars Andre Agassi and Stefi Graf, who signed a deal with FHR to develop a luxury mountain resort in Idaho.
Minutes after the special meeting to vote on Four Seasons' privatization, Sharp, who remains at the helm for the foreseeable future, left the podium with senior executives and board members, looking like a man who had discovered the fountain of youth. Under the arrangement, 75-year-old Sharp, who founded Four Seasons with a single motor hotel on Toronto's gritty Jarvis St., in 1960, was walking away with a tidy jingle in his pocket. Under a 1990 arrangement in which he waived his right to stock options, Sharp receives US$289 million in long-term compensation, plus US$305.5 million for the multiple voting shares through which he controlled the company. The second figure is being converted into US$172-million worth of preferred shares, and a 5% (US$133.5 million) stake in the newly privatized Four Seasons. (Prince Alwaleed, ranked by Forbes as the world's 13th-richest man with a personal fortune estimated at US$20.3 billion, and Gates will each control a 47.5% stake.)
How did the deal to privatize Four Seasons ? which reported a modest profit of US$50.3 million on revenue of US$253.4 million in 2006 ? come about? “He initiated the process,” says Henry, who sits on the boards of both Four Seasons and Fairmont Raffles, referring to Sharp. His sons were not interested in carrying on the Four Seasons legacy, and Sharp had to figure out how best to sail off into the proverbial sunset. “He was worried about his company's future,” says Henry. “Instead of throwing his interest into the public market, he preferred to find investors with the same long-term view.”
The company plans to open 10 hotels a year over the next 10 years, increasing the total number of properties from 74 to more than 170. He adds that at this point, Four Seasons' growth objectives can best be met as a private company because it will have more flexibility in how it finances an anticipated US$12 billion to US$15 billion in construction capital.
A year after privatization, Fairmont Raffles is in the midst of a similarly aggressive expansion, with 100 new properties in various stages of negotiation. “Having a more global presence is a huge benefit,” says CEO William Fatt, speaking from a limo bound for Los Angeles International Airport, noting the Raffles brand has given his company an important beachhead in Asia. A case in point is a deal brokered by minority owner Barrack of Colony Capital for Fairmont Raffles to manage a 1,500-room hotel being built by Las Vegas Sands Corp. in Macau. More recently Prince Alwaleed, who is majority owner, negotiated a deal for Fairmont Raffles to manage the anchor property in a mega-hotel development slated to open in 2008 next to the Sacred Mosque in Mecca, Saudi Arabia ? a city non-Muslims are not even allowed to visit. “That kind of firepower really helps,” says Fatt, referring to the clout his company's new owners can bring to bear on making dream deals happen.
Fatt is travelling a great deal more since FHR went private, regularly shuttling between Los Angeles, Toronto and London, with stops in Singapore and Riyadh, but he seems to thrive on the quickened pace of activity. “I'm having more fun than ever,” admits 56-year-old Fatt. Whether in his twilight years Sharp, too, can personally oversee the dramatic growth that awaits Four Seasons is questionable. What's more certain is that his remaining stake in the company is almost sure to be worth a great deal more in 10 years than today.
