In the months following the 2010 Winter Olympics in Vancouver, Fortress Investment Group (NYSE:FIG) went to work trying to sell Intrawest, the ski resort operator it bought in 2006 for a whopping $2.8 billion. Its investment has gone downhill faster than Lindsey Vonn did on her gold medal run at Whistler Blackcomb last February. Eight months later, and with no takers for the entire company, Fortress has filed a preliminary prospectus that will see it sell off part of its 75% interest in both mountains to public investors. Hoping to raise $300 million through the IPO, investors are wise to avoid Whistler Blackcomb's big coming out party.
IN PICTURES: Retire A Millionaire In 10 Steps

No Takers
Fortress, desperate to relieve the huge debt burden that is Intrawest, is taking its crown jewel to market so that it can lessen the pain ever so slightly. In the summer, rumors circulated that Russian billionaire Vladimir Potanin, developer of the Sochi ski resort for the 2014 Winter Olympics, was interested in buying Whistler Blackcomb. Other potential buyers included existing Fortress partner Nippon Cable (owns Sun Peaks Resort in British Columbia) and Intrawest rival Vail Resorts (NYSE:MTN), which owns several resorts in Colorado and California including its namesake. Not one of them was willing to make an offer for arguably North America's best ski resort. This is a telling sign that Fortress is betting the IPO market is frothy enough to overlook some of the inherent risks of owning a ski resort that's not growing. Ignorance is truly bliss.

The Potential Valuation
According to sources close to the IPO, the share price for the offering is between $14-15, meaning at least 20 million shares of the new company are up for grabs. For simplicity sake, let's assume this is the amount. Public investors will own 54.1% of Whistler Blackcomb Holdings, and Intrawest the remaining 45.9%. The holding company will then own 75% of both the Whistler Limited Partnership and the Blackcomb Limited Partnership with Nippon Cable owning the rest.

This would mean the offering values both mountains at $973 million. Its EBITDA for the 12 months ended June 30, 2010 is $65.5 million, meaning its enterprise value is 15-times EBITDA. The Current EV/EBITDA for Vail Resorts is 11. This doesn't seem like much of a concern, until you until you consider the differences between the two companies. Vail Resorts is not just Vail, but also four other resorts, all with reasonably substantial real estate development potential. Whistler has very little left to work with. Vail's total assets for the entire company are almost seven-times those of Whistler, yet its long-term debt is just twice those of its British Columbia rival. There seems to be far more upside in Colorado.

Be Careful Chasing Yield
Most of the media covering this story suggest the dividend yield, expected to be at least 6.5%, is the main attraction for institutional investors. Individual investors lucky enough to be able to get their hands on some stock should ask themselves if the risk they're taking to achieve this above-average return is worth it. The Globe and Mail recently discussed the issue of yield chasing and concluded there are safer alternatives yielding nearly as much, like the Bank of Nova Scotia (NYSE:BNS) at 3.6%, but possessing far greater appreciation potential. The table below highlights a number of alternatives to Whistler Blackcomb that provide a better balance of income and capital appreciation.

Company Dividend Yield Three-Year Total Annualized Return
World Wrestling Entertainment (NYSE:WWE) 10.4% 7.0%
Suberban Propane Partners L.P. (NYSE:SPH) 6.1% 12.2%
B&G Foods (NYSE:BGS) 6.1% 1.7%
Lorillard (NYSE:LO) 5.4% 3.6%
S&P 500 N/A (5.6%)

The Truth About IPOs
A good IPO focuses on providing a win/win situation for all stakeholders. How does this occur? First, all the proceeds from the offering go to the company listing its shares for debt repayment, capital expenditures and future working capital. Secondly, existing shareholders aren't selling into the offering and, if possible, have a lock-up agreement beyond the usual 180 days. Lastly, shares are offered at a reasonable price and valuation. Whistler Blackcomb Holdings appears to satisfy none. This is never a good deal for new investors, and seasoned pros like Stephen Jarislowsky know better. In his book, "The Investment Zoo" (2005), Jarislowsky suggests that new issues are well promoted and can be bought for much less, a year or two later. In other words, keep your money in your wallet.

The Bottom Line
Beyond all the talk of valuation and merits of this investment, the main reason you should avoid Whistler's big coming out party is to send a message to Fortress Investment Group that individual investors are not going to risk their retirement savings simply to extricate the company from an incredibly poor investment decision. (For related reading about IPOs, see IPO Basics: Introduction.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!