Steamboat Pilot & Today

Steamboat Springs — The American Skiing Co., parent of the Steamboat Ski Area, has announced its intent to merge with the nation's largest independent hotel management company in an effort to rid itself of stifling debt and to build a launching pad for future growth. And there are signs that the new company, Doral International Inc., will be as much about hotels as it is about skiing.

American Skiing will essentially acquire MeriStar Hotels and Resorts in a stock swap valued at about $185 million. American Skiing will issue 1.88 shares for each MeriStar share. For MeriStar shareholders, the price represents a premium of more than 100 percent over the price of MeriStar stock when the market closed Friday.

American Skiing is currently burdened by $450 million in high-interest debt. Under the terms of the acquisition/merger, the company says existing senior credit facilities (loans) of both companies will be replaced by a new $285 million bank loan. Upon completion of the merger, the company expects to have about 190 million shares.

Skiers will represent just 5 million of a total of 23 million visits commanded by Doral International when a handful of golf resorts and more than 200 hotels to be managed by the new company are combined. However, one-half of projected earnings before interest, taxes and depreciation are expected to come from the nine ski resorts currently owned by American Skiing. They include Heavenly Valley, The Canyons, Steamboat and Killington, Vt.

"The new operation will continue to be a skiing company, but we'll have the chance to market skiing to 18 million additional Doral International hotel guests," American Skiing Chairman Les Otten said.

Otten, who will retain the same title with Doral International, said the merger will help level out seasonal fluctuations in earning endured by the nation's third largest skiing company. MeriStar manages high-end hotels operating under a variety of well-known brand names. Its business represents a consistent source of cash flow that isn't so dependent on the weather.

Otten said shareholders of American Skiing stock will benefit from the diminishment of the seasonality of earnings and a reduction of the volatility of the company's financial situation.

"This merger is an incredible combination for us and accelerates our ability to realize growth. This is a powerhouse combination," Otten said. "It opens up new channels for growth and will deliver shareholder value faster."

During a conference call with the media and stock analysts on Monday, Paul Whetsell, who will be the CEO of Doral International, said he believes the merger will give the two companies visibility in investment circles, which they previously lacked. Whetsell is currently CEO and president of MeriStar.

"We have basically taken two small cap companies that were off the radar screen of many in the investment community and made a stronger, larger cap company with a customer base of 23 million," Whetsell said.

Whetsell said the company's long-term plan is to continue to expand and sell fractional ownership of resort properties. But in the near term, he said the focus is on reducing debt, and the company will not undertake any major capital projects other than a new hotel at Heavenly, which is 70 percent presold.

"We are absolutely committed to a reduction of debt," Whetsell said.

Asked if the avoidance of new on-hill capital improvements would hamper the ability of his nine ski areas to compete for market share, Otten said terrain expansion at ski areas has not driven skier numbers in the past five years.

"There have only been two major expansion projects at Colorado in the last five years, Pioneer Ridge at Steamboat and Blue Sky Basin at Vail," Otten said. "They haven't produced the skier days that represent a return on the investment. Right now, with improved accommodations and quality of service, Steamboat is poised to capture more market share."

Otten said Steamboat occupies an extraordinary niche with its family atmosphere and Kids Ski Free Program that can't be duplicated elsewhere.

"When skier growth dictates the need for more capital projects on the mountain, I'm sure we'll evaluate them," Otten said.

When the merger is finalized, perhaps by the end of February, Doral International is expected to have assets totaling more than $1.2 billion.

It will have four divisions headed up by current executives of American Skiing and MeriStar.

The Steamboat Ski Area will come under the Doral Leisure division headed by current ASC Chief Operating Officer William B.J. Fair. The company's second business segment, hotel management, will continue to be led by David McCaslin, currently president of MeriStar Hotels and Resorts. He will also be in charge of the corporate housing division, BridgeStreet Accommodations.

Hernan Martinez, who joined ASC this year to head up a new real estate division, will oversee Doral's development of upscale vacation village and resort real estate.

John Emery, MeriStar's chief financial officer, will remain in that capacity with the new company.